Want To Invest In United Technologies Corporation (NYSE:UTX) Today? Read This First

United Technologies Corporation (NYSE:UTX) is considered a high-growth stock, but its last closing price of $131.26 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 United Technologies

Has the UTX train has slowed down?

Investors in United Technologies 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 18 analysts is bullish with earnings per share estimated to surge from current levels of $5.762 to $8.821 over the next three years. This results in an annual growth rate of 12.03%, on average, which indicates a solid future in the near term.

Is UTX'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.” United Technologies is trading at price-to-earnings (PE) ratio of 22.78x, which tells us the stock is overvalued based on current earnings compared to the aerospace & defense industry average of 22.57x , and overvalued compared to the US market average ratio of 18.66x .

We already know that UTX appears to be overvalued when compared to its industry average. However, since United Technologies is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 22.78x and expected year-on-year earnings growth of 12.03% give United Technologies a higher PEG ratio of 1.89x. Based on this growth, United Technologies's stock can be considered a bit overvalued , based on the fundamentals.

What this means for you:

UTX'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: Is UTX’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 UTX 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 UTX'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.