Is Retail Opportunity Investments Corp’s (NASDAQ:ROIC) Growth Strong Enough To Justify Its August Share Price?

Retail Opportunity Investments Corp (NASDAQ:ROIC) is considered a high growth stock. However its last closing price of $18.91 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing ROIC’s expected growth over the next few years.

See our latest analysis for Retail Opportunity Investments

Where’s the growth?

According to the analysts covering the company, the following few years should bring about good growth prospects for Retail Opportunity Investments. Expectations from 6 analysts are buoyant with earnings per share estimated to rise from today’s level of $0.340 to $0.372 over the next three years. This results in an annual growth rate of 10.58%, on average, which indicates a solid future in the near term.

Is ROIC’s share price justified by its earnings growth?

Retail Opportunity Investments is trading at price-to-earnings (PE) ratio of 55.64x, this tells us the stock is overvalued compared to the US market average ratio of 18.09x , and overvalued based on current earnings compared to the reits industry average of 22.53x . This multiple is a median of profitable companies of 25 REITs companies in US including Champion Real Estate Investment Trust, HMG/Courtland Properties and Fortune REIT.

NasdaqGS:ROIC PE PEG Gauge August 2nd 18
NasdaqGS:ROIC PE PEG Gauge August 2nd 18

We understand ROIC seems to be overvalued based on its current earnings, compared to its industry peers. However, seeing as Retail Opportunity Investments 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 55.64x and expected year-on-year earnings growth of 10.58% give Retail Opportunity Investments a punchy PEG ratio of 5.26x. Based on this growth, Retail Opportunity Investments’s stock can be considered somewhat overvalued , based on its fundamentals.

What this means for you:

ROIC’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: Is ROIC’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 ROIC 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 ROIC’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.

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 editorial-team@simplywallst.com.