Looking at Xilinx Inc’s (NASDAQ:XLNX) fundamentals some investors are wondering if its last closing price of $80.17 represents a good value for money for this high growth stock. Let’s take a look at some key metrics to determine whether there's any value here for current and potential future investors.
What can we expect from Xilinx in the future?Investors in Xilinx have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 21 analysts are certainly positive with earnings forecasted to rise significantly from today's level of $2.174 to $3.477 over the next three years. On average, this leads to a growth rate of 10.9% each year, which signals a market-beating outlook in the upcoming years.
Is XLNX available at a good price after accounting for its growth?
As Warren Buffett’s right-hand man Charlie Munger said, “No matter how wonderful a business is, it’s not worth an infinite price.” Xilinx is available at price-to-earnings ratio of 36.88x, showing us it is overvalued compared to the US market average ratio of 20.57x , and overvalued based on current earnings compared to the semiconductor industry average of 20.53x . This multiple is a median of profitable companies of 25 Semiconductor companies in US including ARISE Technologies, Daqo New Energy and Amtech Systems.
We understand XLNX seems to be overvalued based on its current earnings, compared to its industry peers. However, to be able to properly assess the value of a high-growth stock such as Xilinx, 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 36.88x and expected year-on-year earnings growth of 10.9% give Xilinx a quite high PEG ratio of 3.38x. This means that, when we account for Xilinx's growth, the stock can be viewed as overvalued , based on the fundamentals.
What this means for you:
XLNX'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 XLNX’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 XLNX 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 XLNX'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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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 email@example.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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