Is It Too Late To Buy PerkinElmer, Inc. (NYSE:PKI) At Its July Price?

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Growth expectations for PerkinElmer, Inc. (NYSE:PKI) are high, but many investors are starting to ask whether its last close at $97.64 can still be rationalized by the future potential. Let’s look into this by assessing PKI’s expected growth over the next few years.

See our latest analysis for PerkinElmer

What can we expect from PerkinElmer in the future?

PerkinElmer is poised for significantly high earnings growth in the near future. The consensus forecast from 11 analysts is extremely bullish with earnings per share estimated to surge from current levels of $2.232 to $4.004 over the next three years. This indicates an estimated earnings growth rate of 20% per year, on average, which illustrates a highly optimistic outlook in the near term.

Can PKI’s share price be justified by its earnings growth?

PerkinElmer is trading at price-to-earnings (PE) ratio of 43.75x, this tells us the stock is overvalued compared to the US market average ratio of 18.24x , and overvalued based on current earnings compared to the Life Sciences industry average of 39.84x .

NYSE:PKI Price Estimation Relative to Market, July 2nd 2019
NYSE:PKI Price Estimation Relative to Market, July 2nd 2019

We already know that PKI appears to be overvalued when compared to its industry average. But, to properly examine the value of a high-growth stock such as PerkinElmer, 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 43.75x and expected year-on-year earnings growth of 20% give PerkinElmer a quite high PEG ratio of 2.23x. So, when we include the growth factor in our analysis, PerkinElmer appears overvalued , based on the fundamentals.

What this means for you:

PKI’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:

  1. Financial Health: Are PKI’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 PKI 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 PKI’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.