Is MKS Instruments, Inc.’s (NASDAQ:MKSI) Growth Strong Enough To Justify Its June Share Price?

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MKS Instruments, Inc. (NASDAQ:MKSI) closed yesterday at $76.11, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for MKS Instruments

How is MKSI going to perform in the future?

One reason why investors are attracted to MKSI is the high growth potential in the near future. Expectations from 7 analysts are extremely bullish with earnings forecasted to rise significantly from today’s level of $5.525 to $8.373 over the next three years. On average, this leads to a growth rate of 36% each year, which signals a market-beating outlook in the upcoming years.

Is MKSI available at a good price after accounting for its growth?

MKS Instruments is trading at quite low price-to-earnings (PE) ratio of 13.77x. This tells us the stock 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

MKS Instruments’s price-to-earnings ratio stands at 13.77x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. But, to properly examine the value of a high-growth stock such as MKS Instruments, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. 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. This means that, when we account for MKS Instruments’s growth, the stock can be viewed as relatively cheap , based on its fundamentals.

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.