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Looking at Zoetis Inc.’s (NYSE:ZTS) fundamentals some investors are wondering if its last closing price of $102.02 represents a good value for money for this high growth stock. Below I will be talking through a basic metric which will help answer this question.
Has the ZTS train has slowed down?
Analysts are predicting good growth prospects for Zoetis over the next couple of years. The consensus forecast from 15 analysts is bullish with earnings per share estimated to surge from current levels of $2.883 to $4.297 over the next three years. This indicates an estimated earnings growth rate of 12% per year, on average, which signals a market-beating outlook in the upcoming years.
Is ZTS’s share price justifiable by its earnings growth?
Zoetis is looking rather expensive based on its price-to-earnings (PE) ratio of 35.39x. This illustrates that Zoetis is overvalued compared to the US market average ratio of 17.3x , and overvalued based on current earnings compared to the Pharmaceuticals industry average of 19.45x .
We understand ZTS seems to be overvalued based on its current earnings, compared to its industry peers. But, to be able to properly assess the value of a high-growth stock such as Zoetis, 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 35.39x and expected year-on-year earnings growth of 12% give Zoetis a quite high PEG ratio of 3.03x. So, when we include the growth factor in our analysis, Zoetis appears overvalued , based on the fundamentals.
What this means for you:
ZTS’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 ZTS’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 ZTS 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 ZTS’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.