Have Investors Priced In Aker BP ASA’s (OB:AKERBP) Growth?

Aker BP ASA (OB:AKERBP) closed yesterday at NOK306.2, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Aker BP

Can we expect AKERBP to keep growing?

Aker BP’s extremely high growth potential in the near future is attracting investors. The consensus forecast from 20 analysts is extremely bullish with earnings per share estimated to rise from today’s level of $1.323 to $2.308 over the next three years. This results in an annual growth rate of 18%, on average, which illustrates a highly optimistic outlook in the near term.

Is AKERBP’s share price justifiable by its earnings growth?

AKERBP is available at a PE (price-to-earnings) ratio of 27.01x today, which tells us the stock is overvalued based on current earnings compared to the Oil and Gas industry average of 9.99x , and overvalued compared to the NO market average ratio of 13.44x .

OB:AKERBP Price Estimation Relative to Market, March 25th 2019
OB:AKERBP Price Estimation Relative to Market, March 25th 2019

We understand AKERBP seems to be overvalued based on its current earnings, compared to its industry peers. But, since Aker BP is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 27.01x and expected year-on-year earnings growth of 18% give Aker BP a higher PEG ratio of 1.54x. This tells us that when we include its growth in our analysis Aker BP’s stock can be considered a bit overvalued , based on the fundamentals.

What this means for you:

AKERBP’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are AKERBP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has AKERBP been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of AKERBP’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.