Does Avanza Bank Holding AB (publ)’s (STO:AZA) Stock Price Account For Its Growth?

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Avanza Bank Holding AB (publ) (STO:AZA) is considered a high-growth stock, but its last closing price of SEK409.2 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s look into this by assessing AZA’s expected growth over the next few years.

See our latest analysis for Avanza Bank Holding

How is AZA going to perform in the future?

Avanza Bank Holding’s growth potential is very attractive. The consensus forecast from 3 analysts is extremely bullish with earnings forecasted to rise significantly from today’s level of SEK12.763 to SEK21.079 over the next three years. This indicates an estimated earnings growth rate of 17% per year, on average, which indicates an exceedlingly positive future in the near term.

Is AZA’s share price justifiable by its earnings growth?

As Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price.” Avanza Bank Holding is available at price-to-earnings ratio of 32.06x, showing us it is overvalued compared to the SE market average ratio of 15.37x , and overvalued based on current earnings compared to the Capital Markets industry average of 15.99x .

OM:AZA PE PEG Gauge February 3rd 19
OM:AZA PE PEG Gauge February 3rd 19

We understand AZA seems to be overvalued based on its current earnings, compared to its industry peers. But, since Avanza Bank Holding is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 32.06x and expected year-on-year earnings growth of 17% give Avanza Bank Holding a higher PEG ratio of 1.89x. This means that, when we account for Avanza Bank Holding’s growth, the stock can be viewed as a bit overvalued , based on the fundamentals.

What this means for you:

AZA’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 AZA’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 AZA 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 AZA’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.

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.