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 .
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:
- 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.
- 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.
- 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.