Is Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) Undervalued After Accounting For Its Future Growth?

Looking at Ritchie Bros. Auctioneers Incorporated’s (NYSE:RBA) fundamentals some investors are wondering if its last closing price of $33.86 represents a good value for money for this high growth stock. Let’s look into this by assessing RBA’s expected growth over the next few years.

View our latest analysis for Ritchie Bros. Auctioneers

Has the RBA train has slowed down?

Analysts are predicting good growth prospects for Ritchie Bros. Auctioneers over the next couple of years. The consensus forecast from 10 analysts is buoyant with earnings per share estimated to rise from today’s level of $1.124 to $1.5 over the next three years. On average, this leads to a growth rate of 14% each year, which illustrates an optimistic outlook in the near term.

Is RBA available at a good price after accounting for its growth?

As Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price.” Ritchie Bros. Auctioneers is available at price-to-earnings ratio of 30.12x, showing us it is overvalued compared to the US market average ratio of 17.58x , and overvalued based on current earnings compared to the Commercial Services industry average of 20.03x .

NYSE:RBA Price Estimation Relative to Market, March 16th 2019
NYSE:RBA Price Estimation Relative to Market, March 16th 2019

We already know that RBA appears to be overvalued when compared to its industry average. However, since Ritchie Bros. Auctioneers is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 30.12x and expected year-on-year earnings growth of 14% give Ritchie Bros. Auctioneers a quite high PEG ratio of 2.2x. Based on this growth, Ritchie Bros. Auctioneers’s stock can be considered overvalued , based on fundamental analysis.

What this means for you:

RBA’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:

  1. Financial Health: Are RBA’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 RBA 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 RBA’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.