Momo Inc (NASDAQ:MOMO) is considered a high growth stock. However its last closing price of $44.22 left investors wondering whether this growth has already been factored into the share price. Below I will be talking through a basic metric which will help answer this question.
Has the MOMO train has slowed down?
Momo’s extremely high growth potential in the near future is attracting investors. Expectations from 20 analysts are extremely positive with earnings forecasted to rise significantly from today’s level of $2.123 to $3.68 over the next three years. On average, this leads to a growth rate of 21.9% each year, which illustrates a highly optimistic outlook in the near term.
Is MOMO’s share price justifiable by its earnings growth?
MOMO is available at a PE (price-to-earnings) ratio of 20.83x today, which tells us the stock is undervalued based on its latest annual earnings update compared to the internet average of 38.64x , and overvalued compared to the US market average ratio of 20.51x . This multiple is a median of profitable companies of 24 Internet companies in US including CathayOnline, InsPro Technologies and Glowpoint.
Momo’s price-to-earnings ratio stands at 20.83x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, since Momo is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 20.83x and expected year-on-year earnings growth of 21.9% give Momo a low PEG ratio of 0.95x. This tells us that when we include its growth in our analysis Momo’s stock can be considered fairly valued , based on fundamental analysis.
What this means for you:
MOMO’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:
- Financial Health: Are MOMO’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 MOMO 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 MOMO’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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
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.