Sogou Inc (NYSE:SOGO) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $5.99 is based on unrealistic expectations. Let’s look into this by assessing SOGO’s expected growth over the next few years.
Can we expect SOGO to keep growing?
If you are bullish about Sogou’s growth potential then you are certainly not alone. Expectations from 6 analysts are extremely positive with earnings per share estimated to rise from today’s level of $0.247 to $0.302 over the next three years. On average, this leads to a growth rate of 20% each year, which indicates an exceedlingly positive future in the near term.
Is SOGO available at a good price after accounting for its growth?
SOGO is trading at price-to-earnings (PE) ratio of 24.21x, which suggests that Sogou is undervalued based on its latest annual earnings update compared to the interactive media and services average of 26.83x , and overvalued compared to the US market average ratio of 17.88x .
We already know that SOGO appears to be undervalued based on its PE ratio, compared to the industry average. However, to properly examine the value of a high-growth stock such as Sogou, 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 24.21x and expected year-on-year earnings growth of 20% give Sogou a higher PEG ratio of 1.2x. This tells us that when we include its growth in our analysis Sogou’s stock can be considered slightly overvalued , based on the fundamentals.
What this means for you:
SOGO’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: Are SOGO’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.
- Valuation: What is SOGO worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SOGO is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.