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58.com Inc. (NYSE:WUBA) is considered a high-growth stock, but its last closing price of $71.69 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.
What are the future expectations?
58.com’s extremely high growth potential in the near future is attracting investors. The consensus forecast from 17 analysts is extremely positive with earnings per share estimated to rise from today’s level of CN¥13.543 to CN¥24.798 over the next three years. This results in an annual growth rate of 19%, on average, which illustrates a highly optimistic outlook in the near term.
Is WUBA 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.” 58.com is available at price-to-earnings ratio of 35.64x, showing us it is overvalued compared to the US market average ratio of 18.27x , and overvalued based on current earnings compared to the Interactive Media and Services industry average of 30.17x .
After looking at WUBA’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. But, seeing as 58.com is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 35.64x and expected year-on-year earnings growth of 19% give 58.com a higher PEG ratio of 1.83x. So, when we include the growth factor in our analysis, 58.com appears a bit overvalued , based on its fundamentals.
What this means for you:
WUBA’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:
- Financial Health: Are WUBA’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 WUBA 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 WUBA’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.
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 email@example.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.