Looking at Praxair Inc’s (NYSE:PX) fundamentals some investors are wondering if its last closing price of $160.09 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. View our latest analysis for Praxair
Should you get excited about PX’s future?Praxair’s growth potential is very attractive. Expectations from 16 analysts are extremely bullish with earnings per share estimated to surge from current levels of $4.356 to $7.443 over the next three years. On average, this leads to a growth rate of 20.22% each year, which indicates an exceedlingly positive future in the near term.
Can PX’s share price be justified by its earnings growth?
PX is trading at quite a high price-to-earnings (PE) ratio of 36.75x. This tells us that Praxair is overvalued compared to the US market average ratio of 18.77x , and overvalued based on current earnings compared to the chemicals industry average of 18.6x .
We already know that PX appears to be overvalued when compared to its industry average. However, to properly examine the value of a high-growth stock such as Praxair, 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 36.75x and expected year-on-year earnings growth of 20.22% give Praxair a higher PEG ratio of 1.82x. So, when we include the growth factor in our analysis, Praxair appears a bit overvalued , based on its fundamentals.
What this means for you:
PX’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 urge you to complete your research by taking a look at the following:
- Financial Health: Is PX’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 PX 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 PX’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.