Growth expectations for Aptiv PLC (NYSE:APTV) are high, but many investors are starting to ask whether its last close at $83.43 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.
View our latest analysis for Aptiv
What can we expect from Aptiv in the future?
Investors in Aptiv 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 24 analysts is bullish with earnings per share estimated to rise from today’s level of $3.769 to $6.65 over the next three years. This indicates an estimated earnings growth rate of 14% per year, on average, which indicates a solid future in the near term.
Is APTV’s share price justifiable by its earnings growth?
APTV is available at a PE (price-to-earnings) ratio of 22.14x today, which tells us the stock is overvalued based on current earnings compared to the Auto Components industry average of 15.56x , and overvalued compared to the US market average ratio of 17.4x .
We already know that APTV appears to be overvalued when compared to its industry average. However, to be able to properly assess the value of a high-growth stock such as Aptiv, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 22.14x and expected year-on-year earnings growth of 14% give Aptiv a higher PEG ratio of 1.63x. This tells us that when we include its growth in our analysis Aptiv’s stock can be considered a bit overvalued , based on fundamental analysis.
What this means for you:
APTV’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 urge you to complete your research by taking a look at the following:
- Financial Health: Are APTV’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 APTV 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 APTV’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.
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