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The Boeing Company (NYSE:BA) is considered a high-growth stock, but its last closing price of $379.05 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 BA's expected growth over the next few years.
See our latest analysis for Boeing
Exciting times ahead?
The excitement around Boeing's growth potential is not unfounded. Expectations from 22 analysts are extremely bullish with earnings forecasted to rise significantly from today's level of $17.648 to $28.072 over the next three years. On average, this leads to a growth rate of 16% each year, which indicates an exceedlingly positive future in the near term.
Is BA's share price justified by its earnings growth?
As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Boeing is trading at price-to-earnings (PE) ratio of 21.48x, which tells us the stock is undervalued based on its latest annual earnings update compared to the Aerospace & Defense average of 21.81x , and overvalued compared to the US market average ratio of 18.27x .
We already know that BA appears to be undervalued based on its PE ratio, compared to the industry average. But, since Boeing is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 21.48x and expected year-on-year earnings growth of 16% give Boeing a higher PEG ratio of 1.36x. So, when we include the growth factor in our analysis, Boeing appears slightly overvalued , based on the fundamentals.
What this means for you:
BA'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 BA’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 BA 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 BA'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 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.