Is Lindab International AB (STO:LIAB) Undervalued After Accounting For Its Future Growth?

Lindab International AB (STO:LIAB) is considered a high growth stock. However its last closing price of SEK84.2 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing LIAB’s expected growth over the next few years.

See our latest analysis for Lindab International

Where’s the growth?

Investors in Lindab International 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. The consensus forecast from 4 analysts is buoyant with earnings per share estimated to rise from today’s level of SEK5.162 to SEK7.806 over the next three years. This indicates an estimated earnings growth rate of 12% per year, on average, which indicates a solid future in the near term.

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

Stocks like Lindab International, with a price-to-earnings (P/E) ratio of 16.31x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that LIAB is undervalued relative to the current SE market average of 16.99x , and undervalued based on its latest annual earnings update compared to the Building average of 16.99x .

OM:LIAB Price Estimation Relative to Market, March 19th 2019
OM:LIAB Price Estimation Relative to Market, March 19th 2019

Given that LIAB’s price-to-earnings of 16.31x 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 Lindab International, 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 16.31x and expected year-on-year earnings growth of 12% give Lindab International a higher PEG ratio of 1.32x. So, when we include the growth factor in our analysis, Lindab International appears slightly overvalued , based on its fundamentals.

What this means for you:

LIAB’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 LIAB’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 LIAB 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 LIAB’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.