Mohawk Industries, Inc. (NYSE:MHK) is considered a high growth stock. However its last closing price of $138.69 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.
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Where’s the growth?
Investors in Mohawk Industries 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 17 analysts is bullish with earnings per share estimated to surge from current levels of $10.434 to $13.988 over the next three years. On average, this leads to a growth rate of 11% each year, which illustrates an optimistic outlook in the near term.
Is MHK available at a good price after accounting for its growth?
Stocks like Mohawk Industries, with a price-to-earnings (P/E) ratio of 13.29x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that MHK is undervalued relative to the current US market average of 17.74x , and undervalued based on its latest annual earnings update compared to the Consumer Durables average of 14.64x .
Given that MHK’s price-to-earnings of 13.29x lies below the industry average, this already indicates that the company could be potentially undervalued. However, to be able to properly assess the value of a high-growth stock such as Mohawk Industries, 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 13.29x and expected year-on-year earnings growth of 11% give Mohawk Industries an acceptable PEG ratio of 1.17x. This tells us that when we include its growth in our analysis Mohawk Industries’s stock can be considered slightly overvalued , based on its fundamentals.
What this means for you:
MHK’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 MHK’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 MHK 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 MHK’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 email@example.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.