11 bit studios S.A. (WSE:11B): Can Growth Justify Its March Share Price?

11 bit studios S.A. (WSE:11B) closed yesterday at PLN284, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing 11B's expected growth over the next few years.

View our latest analysis for 11 bit studios

What can we expect from 11B in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for 11 bit studios. The consensus forecast from 5 analysts is bullish with earnings per share estimated to rise from today's level of PLN14.313 to PLN28.316 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which indicates a solid future in the near term.

Can 11B's share price be justified by its earnings growth?

11 bit studios is available at price-to-earnings ratio of 19.84x, showing us it is undervalued based on its latest annual earnings update compared to the Entertainment average of 22.85x , and overvalued compared to the PL market average ratio of 10.69x .

We already know that 11B appears to be undervalued based on its PE ratio, compared to the industry average. However, seeing as 11 bit studios is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 19.84x and expected year-on-year earnings growth of 15% give 11 bit studios a higher PEG ratio of 1.35x. Based on this growth, 11 bit studios's stock can be considered slightly overvalued , based on the fundamentals.

What this means for you:

11B'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 11B’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 11B 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 11B'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.