BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $23.86 is based on unrealistic expectations. Let’s look into this by assessing BJ’s expected growth over the next few years.
Can we expect BJ to keep growing?
The excitement around BJ’s Wholesale Club Holdings’s growth potential is not unfounded. Expectations from 13 analysts are extremely bullish with earnings forecasted to rise significantly from today’s level of $1.255 to $1.811 over the next three years. This indicates an estimated earnings growth rate of 21% per year, on average, which illustrates a highly optimistic outlook in the near term.
Is BJ’s share price justifiable by its earnings growth?
BJ is available at a PE (price-to-earnings) ratio of 19.01x today, which tells us the stock is overvalued based on current earnings compared to the consumer retailing industry average of 12.87x , and overvalued compared to the US market average ratio of 17.21x .
After looking at BJ’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, to properly examine the value of a high-growth stock such as BJ’s Wholesale Club Holdings, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 19.01x and expected year-on-year earnings growth of 21% give BJ’s Wholesale Club Holdings a low PEG ratio of 0.89x. This tells us that when we include its growth in our analysis BJ’s Wholesale Club Holdings’s stock can be considered fairly valued , based on fundamental analysis.
What this means for you:
BJ’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may 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:
- 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.
- 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.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.