Is IAC/InterActiveCorp’s (NASDAQ:IAC) Growth Strong Enough To Justify Its April Share Price?

IAC/InterActiveCorp (NASDAQ:IAC) is considered a high-growth stock, but its last closing price of $228.86 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

Check out our latest analysis for IAC/InterActiveCorp

How is IAC going to perform in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for IAC/InterActiveCorp. The consensus forecast from 19 analysts is certainly positive with earnings per share estimated to surge from current levels of $7.517 to $8.903 over the next three years. This results in an annual growth rate of 15%, on average, which indicates a solid future in the near term.

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

As Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price.” IAC/InterActiveCorp is available at price-to-earnings ratio of 30.45x, showing us it is overvalued compared to the US market average ratio of 18.28x , and undervalued based on its latest annual earnings update compared to the Interactive Media and Services average of 30.45x .

NasdaqGS:IAC Price Estimation Relative to Market, April 24th 2019
NasdaqGS:IAC Price Estimation Relative to Market, April 24th 2019

We already know that IAC appears to be undervalued based on its PE ratio, compared to the industry average. However, to be able to properly assess the value of a high-growth stock such as IAC/InterActiveCorp, 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 30.45x and expected year-on-year earnings growth of 15% give IAC/InterActiveCorp a quite high PEG ratio of 2.04x. So, when we include the growth factor in our analysis, IAC/InterActiveCorp appears overvalued , based on its fundamentals.

What this means for you:

IAC’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:

  1. Financial Health: Are IAC’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 IAC 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 IAC’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.