Is E*TRADE Financial Corporation (NASDAQ:ETFC) Undervalued After Accounting For Its Future Growth?

E*TRADE Financial Corporation (NASDAQ:ETFC) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $56.96 is based on unrealistic expectations. 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 E*TRADE Financial

What can we expect from ETFC in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for E*TRADE Financial. Expectations from 14 analysts are buoyant with earnings per share estimated to surge from current levels of $2.156 to $4.13 over the next three years. This indicates an estimated earnings growth rate of 14.37% per year, on average, which indicates a solid future in the near term.

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

ETFC is available at a PE (price-to-earnings) ratio of 26.42x today, which tells us the stock is overvalued based on current earnings compared to the capital markets industry average of 16.76x , and overvalued compared to the US market average ratio of 18.22x .

NasdaqGS:ETFC PE PEG Gauge Apr 16th 18
NasdaqGS:ETFC PE PEG Gauge Apr 16th 18

After looking at ETFC’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 E*TRADE Financial, 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 26.42x and expected year-on-year earnings growth of 14.37% give E*TRADE Financial a higher PEG ratio of 1.84x. Based on this growth, E*TRADE Financial’s stock can be considered a bit overvalued , based on fundamental analysis.

What this means for you:

ETFC’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: Is ETFC’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 ETFC 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 ETFC’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.