Is Commercial Metals Company (NYSE:CMC) Undervalued After Accounting For Its Future Growth?

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Commercial Metals Company (NYSE:CMC) closed yesterday at $15.12, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing CMC’s expected growth over the next few years.

See our latest analysis for Commercial Metals

What can we expect from CMC in the future?

Commercial Metals is poised for extremely high earnings growth in the near future. The consensus forecast from 9 analysts is extremely bullish with earnings per share estimated to rise from today’s level of $1.09 to $1.777 over the next three years. This indicates an estimated earnings growth rate of 25% per year, on average, which indicates an exceedlingly positive future in the near term.

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

Commercial Metals is trading at quite low price-to-earnings (PE) ratio of 13.88x. This tells us the stock is undervalued relative to the current US market average of 17.69x , and overvalued based on current earnings compared to the Metals and Mining industry average of 9.15x .

NYSE:CMC Price Estimation Relative to Market, June 16th 2019
NYSE:CMC Price Estimation Relative to Market, June 16th 2019

We understand CMC seems to be overvalued based on its current earnings, compared to its industry peers. But, to properly examine the value of a high-growth stock such as Commercial Metals, 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 13.88x and expected year-on-year earnings growth of 25% give Commercial Metals a very low PEG ratio of 0.56x. This means that, when we account for Commercial Metals’s growth, the stock can be viewed as relatively cheap , based on its fundamentals.

What this means for you:

CMC’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 highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are CMC’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 CMC 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 CMC’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.