Assessing EROAD (NZSE:ERD) Valuation Following New Zealand’s Road User Charge Expansion for EVs

New Zealand's decision to expand road user charges to include light electric vehicles is set to shake up the transport sector. EROAD (NZSE:ERD), with its existing electronic charging systems, is well positioned to benefit from the change.

See our latest analysis for EROAD.

Investors have taken notice of EROAD’s new growth prospects, with the share price posting an eye-catching 118.9% return over the last three months and a 170.1% year-to-date gain. The one-year total shareholder return of 207.5% signals serious momentum behind the stock. This suggests that optimism about the company’s role in the evolving road user charge landscape is outweighing caution from its more mixed longer-term track record.

If you’re watching EROAD’s rally and wondering what else the market has to offer, this could be the perfect time to explore fast growing stocks with high insider ownership.

But with such rapid gains in EROAD’s share price, is the stock now undervalued given its fresh growth prospects? Or has the market already priced in everything and left little room for further upside?

Price-to-Sales Ratio of 2.8x: Is it justified?

EROAD is currently trading at a price-to-sales ratio of 2.8, which is notably higher than the global electronic industry average of 1.7. Despite the recent surge in share price, the stock’s valuation now sits well above both its industry and fair value multiples.

The price-to-sales ratio measures how much investors are willing to pay for each dollar of sales. This metric is especially relevant for companies like EROAD, which are navigating new growth opportunities after becoming profitable.

This premium suggests that the market is pricing in strong future growth and profitability. However, the fair price-to-sales ratio for EROAD is estimated to be only 1.4, which is less than half its current multiple. This indicates that bullish expectations may be ahead of fundamentals. The market could eventually realign the multiple closer to this fair value level if growth does not keep pace.

Explore the SWS fair ratio for EROAD

Result: Price-to-Sales of 2.8x (OVERVALUED)

However, EROAD’s premium valuation faces risk if growth slows or if profitability does not improve as quickly as investors expect.

Find out about the key risks to this EROAD narrative.

Another View: DCF Model Suggests Undervaluation

Taking a different approach, the SWS DCF model presents a very different picture for EROAD. Based on our estimate, the stock is trading at a 35.8% discount to its fair value of NZ$4.50. This suggests EROAD may be undervalued even though it appears expensive based on its sales ratio. Which method should investors trust?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out EROAD for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own EROAD Narrative

If you’d rather put the numbers to the test yourself or have your own perspective on EROAD, you can easily build a narrative in just a few minutes. Do it your way.

A great starting point for your EROAD research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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