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Growth expectations for SiteOne Landscape Supply, Inc. (NYSE:SITE) are high, but many investors are starting to ask whether its last close at $59.66 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.
What are the future expectations?
SiteOne Landscape Supply is poised for significantly high earnings growth in the near future. Expectations from 8 analysts are extremely bullish with earnings forecasted to rise significantly from today’s level of $1.641 to $2.738 over the next three years. This results in an annual growth rate of 24%, on average, which indicates an exceedlingly positive future in the near term.
Is SITE’s share price justifiable by its earnings growth?
SiteOne Landscape Supply is trading at price-to-earnings (PE) ratio of 36.36x, this tells us the stock is overvalued compared to the US market average ratio of 18.12x , and overvalued based on current earnings compared to the Trade Distributors industry average of 16.35x .
After looking at SITE’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, to be able to properly assess the value of a high-growth stock such as SiteOne Landscape Supply, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 36.36x and expected year-on-year earnings growth of 24% give SiteOne Landscape Supply a higher PEG ratio of 1.49x. This tells us that when we include its growth in our analysis SiteOne Landscape Supply’s stock can be considered slightly overvalued , based on fundamental analysis.
What this means for you:
SITE’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 SITE’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 SITE 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 SITE’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.