Quanta Services, Inc. (NYSE:PWR): Can Growth Justify Its March Share Price?

Quanta Services, Inc. (NYSE:PWR) is considered a high-growth stock, but its last closing price of $36.22 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.

See our latest analysis for Quanta Services

Where’s the growth?

Quanta Services is poised for significantly high earnings growth in the near future. The consensus forecast from 10 analysts is extremely positive with earnings per share estimated to surge from current levels of $1.918 to $3.359 over the next three years. On average, this leads to a growth rate of 17% each year, which indicates an exceedlingly positive future in the near term.

Is PWR’s share price justifiable by its earnings growth?

PWR is trading at price-to-earnings (PE) ratio of 18.89x, which suggests that Quanta Services is overvalued based on current earnings compared to the Construction industry average of 17.39x , and overvalued compared to the US market average ratio of 17.52x .

NYSE:PWR Price Estimation Relative to Market, March 13th 2019
NYSE:PWR Price Estimation Relative to Market, March 13th 2019

We understand PWR seems to be overvalued based on its current earnings, compared to its industry peers. But, since Quanta Services is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 18.89x and expected year-on-year earnings growth of 17% give Quanta Services an acceptable PEG ratio of 1.11x. This tells us that when we include its growth in our analysis Quanta Services’s stock can be considered slightly overvalued , based on fundamental analysis.

What this means for you:

PWR’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:

  1. Financial Health: Are PWR’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 PWR 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 PWR’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.