Does Washington Real Estate Investment Trust’s (NYSE:WRE) April Stock Price Reflect Its Future Growth?

Washington Real Estate Investment Trust (NYSE:WRE) closed yesterday at $28.38, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing WRE’s expected growth over the next few years.

See our latest analysis for Washington Real Estate Investment Trust

What can we expect from WRE in the future?

The excitement around Washington Real Estate Investment Trust’s growth potential is not unfounded. Expectations from 6 analysts are extremely positive with earnings per share estimated to rise from today’s level of $0.318 to $0.416 over the next three years. On average, this leads to a growth rate of 23% each year, which illustrates a highly optimistic outlook in the near term.

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

Washington Real Estate Investment Trust is trading at price-to-earnings (PE) ratio of 89.26x, this also tells us the stock is overvalued based on current earnings compared to the REITs industry average of 31.56x , and overvalued compared to the US market average ratio of 17.68x .

NYSE:WRE Price Estimation Relative to Market, April 1st 2019
NYSE:WRE Price Estimation Relative to Market, April 1st 2019

After looking at WRE’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, seeing as Washington Real Estate Investment Trust 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 89.26x and expected year-on-year earnings growth of 23% give Washington Real Estate Investment Trust a quite high PEG ratio of 3.84x. This means that, when we account for Washington Real Estate Investment Trust’s growth, the stock can be viewed as overvalued , based on its fundamentals.

What this means for you:

WRE’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 WRE’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 WRE 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 WRE’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.