Kansas City Southern (NYSE:KSU) is considered a high growth stock. However its last closing price of $124.07 left investors wondering whether this growth has already been factored into the share 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 Kansas City Southern over the next couple of years. Expectations from 17 analysts are bullish with earnings per share estimated to rise from today’s level of $5.778 to $8.637 over the next three years. On average, this leads to a growth rate of 14% each year, which signals a market-beating outlook in the upcoming years.
Is KSU’s share price justified by its earnings growth?
As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Kansas City Southern is trading at price-to-earnings (PE) ratio of 21.47x, which tells us the stock is overvalued based on current earnings compared to the Transportation industry average of 18.69x , and overvalued compared to the US market average ratio of 18.28x .
We already know that KSU appears to be overvalued when compared to its industry average. But, since Kansas City Southern is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 21.47x and expected year-on-year earnings growth of 14% give Kansas City Southern a higher PEG ratio of 1.57x. This tells us that when we include its growth in our analysis Kansas City Southern’s stock can be considered a bit overvalued , based on the fundamentals.
What this means for you:
KSU’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 KSU’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 KSU 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 KSU’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 email@example.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.