Is HD Supply Holdings, Inc.’s (NASDAQ:HDS) Future Growth Already Accounted For In Today’s Price?

HD Supply Holdings, Inc. (NASDAQ:HDS) closed yesterday at $41.6, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for HD Supply Holdings

What can we expect from HD Supply Holdings in the future?

Analysts are predicting good growth prospects for HD Supply Holdings over the next couple of years. Expectations from 17 analysts are certainly positive with earnings per share estimated to rise from today’s level of $2.159 to $3.659 over the next three years. This indicates an estimated earnings growth rate of 12% per year, on average, which signals a market-beating outlook in the upcoming years.

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

HD Supply Holdings is available at price-to-earnings ratio of 19.27x, showing us it is overvalued based on current earnings compared to the Trade Distributors industry average of 13.15x , and overvalued compared to the US market average ratio of 17.17x .

NasdaqGS:HDS Price Estimation Relative to Market, March 26th 2019
NasdaqGS:HDS Price Estimation Relative to Market, March 26th 2019

We already know that HDS appears to be overvalued when compared to its industry average. However, to properly examine the value of a high-growth stock such as HD Supply Holdings, 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 19.27x and expected year-on-year earnings growth of 12% give HD Supply Holdings a higher PEG ratio of 1.55x. So, when we include the growth factor in our analysis, HD Supply Holdings appears a bit overvalued , based on the fundamentals.

What this means for you:

HDS’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 HDS’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 HDS 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 HDS’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.