Does MKS Instruments, Inc.’s (NASDAQ:MKSI) Stock Price Account For Its Growth?

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MKS Instruments, Inc. (NASDAQ:MKSI) is considered a high-growth stock, but its last closing price of $76.11 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s look into this by assessing MKSI’s expected growth over the next few years.

Check out our latest analysis for MKS Instruments

Should you get excited about MKSI’s future?

MKS Instruments is poised for extremely high earnings growth in the near future. Expectations from 7 analysts are extremely bullish with earnings per share estimated to rise from today’s level of $5.525 to $8.373 over the next three years. This indicates an estimated earnings growth rate of 36% per year, on average, which signals a market-beating outlook in the upcoming years.

Is MKSI’s share price justifiable by its earnings growth?

MKS Instruments is available at a price-to-earnings ratio of 13.77x, showing us it is undervalued relative to the current US market average of 17.88x , and undervalued based on its latest annual earnings update compared to the Semiconductor average of 22.73x .

NasdaqGS:MKSI Price Estimation Relative to Market, June 22nd 2019
NasdaqGS:MKSI Price Estimation Relative to Market, June 22nd 2019

We already know that MKSI appears to be undervalued based on its PE ratio, compared to the industry average. However, to be able to properly assess the value of a high-growth stock such as MKS Instruments, 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 13.77x and expected year-on-year earnings growth of 36% give MKS Instruments an extremely low PEG ratio of 0.39x. So, when we include the growth factor in our analysis, MKS Instruments appears relatively cheap , based on fundamental analysis.

What this means for you:

MKSI’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may 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 urge you to complete your research by taking a look at the following:

  1. Financial Health: Are MKSI’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 MKSI 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 MKSI’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.