Is Synlait Milk Limited’s (NZE:SML) Future Growth Already Accounted For In Today’s Price?

Synlait Milk Limited (NZSE:SML) is considered a high growth stock. However its last closing price of NZ$8.82 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing SML’s expected growth over the next few years. See our latest analysis for Synlait Milk

Exciting times ahead?

Investors in Synlait Milk have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 4 analysts are bullish with earnings forecasted to rise significantly from today’s level of NZ$0.381 to NZ$0.608 over the next three years. This results in an annual growth rate of 12.33%, on average, which signals a market-beating outlook in the upcoming years.

Is SML available at a good price after accounting for its growth?

SML is available at a PE (price-to-earnings) ratio of 23.14x today, which tells us the stock is overvalued based on current earnings compared to the food industry average of 18.04x , and overvalued compared to the NZ market average ratio of 13.84x .

NZSE:SML PE PEG Gauge Apr 10th 18
NZSE:SML PE PEG Gauge Apr 10th 18

We already know that SML appears to be overvalued when compared to its industry average. But, to be able to properly assess the value of a high-growth stock such as Synlait Milk, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 23.14x and expected year-on-year earnings growth of 12.33% give Synlait Milk a higher PEG ratio of 1.88x. Based on this growth, Synlait Milk’s stock can be considered a bit overvalued , based on the fundamentals.

What this means for you:

SML’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: Is SML’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 SML 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 SML’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.