Growth expectations for ENEA SA (WSE:ENA) are high, but many investors are starting to ask whether its last close at PLN8.67 can still be rationalized by the future potential. Let’s look into this by assessing ENA’s expected growth over the next few years.
Check out our latest analysis for ENEA
Has the ENA train has slowed down?
ENEA is poised for significantly high earnings growth in the near future. The consensus forecast from 8 analysts is extremely positive with earnings per share estimated to surge from current levels of PLN2.085 to PLN3.04 over the next three years. On average, this leads to a growth rate of 16% each year, which indicates an exceedlingly positive future in the near term.
Is ENA available at a good price after accounting for its growth?
We all love low PE stocks, but when it’s too low, for example, in the case of ENEA, something starts to smell. Why are investors placing such a low value on the company’s earnings? ENA’s price-to-earnings ratio is sitting at 4.16x, which tells us the company is undervalued based on its latest annual earnings update compared to the electric utilities average of 4.41x , and undervalued relative to the current PL market average of 10.06x . This multiple is a median of profitable companies of 6 Electric Utilities companies in PL including TAURON Polska Energia, Energa and AB Inter RAO Lietuva.
Given that ENA’s price-to-earnings of 4.16x lies below the industry average, this already indicates that the company could be potentially undervalued. However, to properly examine the value of a high-growth stock such as ENEA, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 4.16x and expected year-on-year earnings growth of 16% give ENEA an extremely low PEG ratio of 0.26x. So, when we include the growth factor in our analysis, ENEA appears relatively cheap , based on fundamental analysis.
What this means for you:
ENA’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may 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:
- Financial Health: Are ENA’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.
- Past Track Record: Has ENA 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 ENA’s historicals for more clarity.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.