STORE Capital Corporation (NYSE:STOR) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $32 is based on unrealistic expectations. Let’s look into this by assessing STOR’s expected growth over the next few years.
Where’s the growth?Analysts are predicting good growth prospects for STORE Capital over the next couple of years. Expectations from 7 analysts are buoyant with earnings per share estimated to rise from today’s level of $1.06 to $1.08 over the next three years. On average, this leads to a growth rate of 10% each year, which indicates a solid future in the near term.
Can STOR’s share price be justified by its earnings growth?
STORE Capital is trading at price-to-earnings (PE) ratio of 30.19x, this tells us the stock is overvalued compared to the US market average ratio of 17.83x , and undervalued based on its latest annual earnings update compared to the REITs average of 30.19x .
We already know that STOR appears to be undervalued based on its PE ratio, compared to the industry average. However, seeing as STORE Capital 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 30.19x and expected year-on-year earnings growth of 10% give STORE Capital a quite high PEG ratio of 2.88x. So, when we include the growth factor in our analysis, STORE Capital appears overvalued , based on its fundamentals.
What this means for you:
STOR’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 STOR’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 STOR 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 STOR’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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.