Does Select Medical Holdings Corporation’s (NYSE:SEM) May Stock Price Reflect Its Future Growth?

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Looking at Select Medical Holdings Corporation’s (NYSE:SEM) fundamentals some investors are wondering if its last closing price of $14.56 represents a good value for money for this high growth stock. 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 Select Medical Holdings

What can we expect from Select Medical Holdings in the future?

Investors in Select Medical Holdings 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. Expectations from 6 analysts are certainly positive with earnings per share estimated to surge from current levels of $1.024 to $1.275 over the next three years. This results in an annual growth rate of 12%, on average, which indicates a solid future in the near term.

Is SEM’s share price justifiable by its earnings growth?

Stocks like Select Medical Holdings, with a price-to-earnings (P/E) ratio of 14.22x, 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 SEM is undervalued relative to the current US market average of 18.27x , and undervalued based on its latest annual earnings update compared to the Healthcare average of 20.98x .

NYSE:SEM Price Estimation Relative to Market, May 1st 2019
NYSE:SEM Price Estimation Relative to Market, May 1st 2019

Given that SEM’s price-to-earnings of 14.22x lies below the industry average, this already indicates that the company could be potentially undervalued. But, to be able to properly assess the value of a high-growth stock such as Select Medical Holdings, 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 14.22x and expected year-on-year earnings growth of 12% give Select Medical Holdings an acceptable PEG ratio of 1.14x. This tells us that when we include its growth in our analysis Select Medical Holdings’s stock can be considered slightly overvalued , based on its fundamentals.

What this means for you:

SEM’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: Are SEM’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 SEM 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 SEM’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.

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.