WW Grainger Inc (NYSE:GWW) is considered a high-growth stock, but its last closing price of $314.04 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 GWW’s expected growth over the next few years.
What can we expect from W.W. Grainger in the future?Analysts are predicting good growth prospects for W.W. Grainger over the next couple of years. Expectations from 21 analysts are bullish with earnings per share estimated to surge from current levels of $12.756 to $20.57 over the next three years. This results in an annual growth rate of 13%, on average, which indicates a solid future in the near term.
Is GWW’s share price justifiable by its earnings growth?
GWW is trading at price-to-earnings (PE) ratio of 24.62x, which suggests that W.W. Grainger is overvalued based on current earnings compared to the trade distributors industry average of 12.99x , and overvalued compared to the US market average ratio of 18.04x .
After looking at GWW’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, to properly examine the value of a high-growth stock such as W.W. Grainger, 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 24.62x and expected year-on-year earnings growth of 13% give W.W. Grainger a higher PEG ratio of 1.85x. This means that, when we account for W.W. Grainger’s growth, the stock can be viewed as a bit overvalued , based on its fundamentals.
What this means for you:
GWW’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 GWW’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 GWW 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 GWW’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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.