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Woodward, Inc. (NASDAQ:WWD) is considered a high-growth stock, but its last closing price of $113.8 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Below I will be talking through a basic metric which will help answer this question.
Where’s the growth?
Woodward is poised for extremely high earnings growth in the near future. Expectations from 8 analysts are extremely bullish with earnings per share estimated to surge from current levels of $4.049 to $6.418 over the next three years. This indicates an estimated earnings growth rate of 19% per year, on average, which indicates an exceedlingly positive future in the near term.
Is WWD’s share price justified by its earnings growth?
WWD is available at a PE (price-to-earnings) ratio of 28.11x today, which tells us the stock is overvalued based on current earnings compared to the Machinery industry average of 21.25x , and overvalued compared to the US market average ratio of 17.98x .
After looking at WWD’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, seeing as Woodward 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 28.11x and expected year-on-year earnings growth of 19% give Woodward a higher PEG ratio of 1.48x. So, when we include the growth factor in our analysis, Woodward appears slightly overvalued , based on its fundamentals.
What this means for you:
WWD’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:
- Financial Health: Are WWD’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 WWD 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 WWD’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.
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 firstname.lastname@example.org. 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.