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FedEx Corporation (NYSE:FDX) closed yesterday at $180.66, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
Where’s the growth?Analysts are predicting good growth prospects for FedEx over the next couple of years. Expectations from 23 analysts are bullish with earnings forecasted to rise significantly from today’s level of $13.832 to $19.377 over the next three years. This results in an annual growth rate of 12%, on average, which illustrates an optimistic outlook in the near term.
Is FDX’s share price justified by its earnings growth?
Stocks like FedEx, with a price-to-earnings (P/E) ratio of 13.06x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that FDX is undervalued relative to the current US market average of 18.19x , and undervalued based on its latest annual earnings update compared to the Logistics average of 19.62x .
Given that FDX’s price-to-earnings of 13.06x lies below the industry average, this already indicates that the company could be potentially undervalued. But, since FedEx is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 13.06x and expected year-on-year earnings growth of 12% give FedEx an acceptable PEG ratio of 1.09x. This tells us that when we include its growth in our analysis FedEx’s stock can be considered slightly overvalued , based on the fundamentals.
What this means for you:
FDX’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 urge you to complete your research by taking a look at the following:
- Financial Health: Are FDX’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 FDX 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 FDX’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.
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 firstname.lastname@example.org. 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.