Is The Toro Company’s (NYSE:TTC) Future Growth Already Accounted For In Today’s Price?

The Toro Company (NYSE:TTC) closed yesterday at $74.03, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Toro

Where’s the growth?

Investors in Toro have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 2 analysts is bullish with earnings per share estimated to rise from today’s level of $2.91 to $3.871 over the next three years. On average, this leads to a growth rate of 10% each year, which illustrates an optimistic outlook in the near term.

Can TTC’s share price be justified by its earnings growth?

TTC is available at a PE (price-to-earnings) ratio of 25.44x today, which tells us the stock is overvalued based on current earnings compared to the Machinery industry average of 21.67x , and overvalued compared to the US market average ratio of 18.17x .

NYSE:TTC Price Estimation Relative to Market, April 20th 2019
NYSE:TTC Price Estimation Relative to Market, April 20th 2019

After looking at TTC’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, since Toro is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 25.44x and expected year-on-year earnings growth of 10% give Toro a quite high PEG ratio of 2.49x. So, when we include the growth factor in our analysis, Toro appears overvalued , based on the fundamentals.

What this means for you:

TTC’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 TTC’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 TTC 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 TTC’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.