Is It Too Late To Buy Mercury Systems, Inc. (NASDAQ:MRCY) At Its April Price?

Growth expectations for Mercury Systems, Inc. (NASDAQ:MRCY) are high, but many investors are starting to ask whether its last close at $67.25 can still be rationalized by the future potential. Let’s look into this by assessing MRCY's expected growth over the next few years.

See our latest analysis for Mercury Systems

What can we expect from MRCY in the future?

Mercury Systems's growth potential is very attractive. Expectations from 8 analysts are extremely bullish with earnings per share estimated to rise from today's level of $0.717 to $1.356 over the next three years. This indicates an estimated earnings growth rate of 25% per year, on average, which illustrates a highly optimistic outlook in the near term.

Is MRCY's share price justifiable by its earnings growth?

MRCY is trading at a very high price-to-earnings (PE) ratio of 93.76x, meaning Mercury Systems is overvalued based on current earnings compared to the Aerospace & Defense industry average of 22.19x , and overvalued compared to the US market average ratio of 18.21x .

We already know that MRCY appears to be overvalued when compared to its industry average. However, seeing as Mercury Systems is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 93.76x and expected year-on-year earnings growth of 25% give Mercury Systems a quite high PEG ratio of 3.78x. Based on this growth, Mercury Systems's stock can be considered overvalued , based on its fundamentals.

What this means for you:

MRCY'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 MRCY’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 MRCY 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 MRCY'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.