BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ): Is Growth Priced In?

Growth expectations for BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) are high, but many investors are starting to ask whether its last close at $27.57 can still be rationalized by the future potential. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for BJ’s Wholesale Club Holdings

Exciting times ahead?

BJ’s Wholesale Club Holdings is poised for extremely high earnings growth in the near future. Expectations from 13 analysts are extremely positive with earnings per share estimated to rise from today’s level of $1.09 to $1.879 over the next three years. On average, this leads to a growth rate of 17% each year, which signals a market-beating outlook in the upcoming years.

Is BJ’s share price justified by its earnings growth?

BJ is available at a PE (price-to-earnings) ratio of 25.29x today, which tells us the stock is overvalued based on current earnings compared to the Consumer Retailing industry average of 20.96x , and overvalued compared to the US market average ratio of 18.07x .

NYSE:BJ Price Estimation Relative to Market, April 26th 2019
NYSE:BJ Price Estimation Relative to Market, April 26th 2019

We understand BJ seems to be overvalued based on its current earnings, compared to its industry peers. But, since BJ’s Wholesale Club Holdings is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 25.29x and expected year-on-year earnings growth of 17% give BJ’s Wholesale Club Holdings a higher PEG ratio of 1.5x. This means that, when we account for BJ’s Wholesale Club Holdings’s growth, the stock can be viewed as a bit overvalued , based on fundamental analysis.

What this means for you:

BJ’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 BJ’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. Valuation: What is BJ worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BJ is currently mispriced by the market.
  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.