Wednesday, 19 September 2018

Want To Invest In G5 Entertainment AB (publ) (STO:G5EN) Today? Read This First

Want To Invest In G5 Entertainment AB (publ) (STO:G5EN) Today? Read This First
21 Jun

G5 Entertainment AB (publ) (STO:G5EN) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of SEK517.5 is based on unrealistic expectations.
Below I will be talking through a basic metric which will help answer this question.

View out our latest analysis for G5 Entertainment

What can we expect from G5 Entertainment in the future?

G5 Entertainment’s extremely high growth potential in the near future is attracting investors.
The consensus forecast from 2 analysts is
extremely bullish
with earnings per share estimated to rise from today’s level of
SEK13.021 to SEK31.865 over the next three years.
This results in an annual growth rate of 34.60%, on average,
which illustrates a highly optimistic outlook in the near term.

Can G5EN’s share price be justified by its earnings growth?

G5EN is trading at quite a high price-to-earnings (PE) ratio of 39.74x. This tells us that G5 Entertainment is
overvalued compared to the SE market average ratio of 17.49x
, and
overvalued based on current earnings compared to the software industry average of 33.83x

OM:G5EN PE PEG Gauge June 21st 18
OM:G5EN PE PEG Gauge June 21st 18

After looking at G5EN’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry.
to properly examine the value of a high-growth stock such as G5 Entertainment, 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 39.74x and expected year-on-year earnings growth of 34.60% give G5 Entertainment
an acceptable
PEG ratio of 1.15x.
Based on this growth, G5 Entertainment’s stock can be considered
slightly overvalued
, based on its fundamentals.

What this means for you:

G5EN’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:

  1. Financial Health: Is G5EN’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 G5EN 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 G5EN’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.

Investors! Do you know the famous “Icahn’s lift”?

Noted activist shareholder, Carl Ichan has become famous (and rich) by taking positions in badly run public corporations and forcing them to make radical changes to uncover shareholders value. “Icahn lift” is a bump in a company’s stock price that often occurs after he has taken a position in it. What were his last buys? Click here to view a FREE detailed infographic analysis of Carl Icahn’s investment portfolio.

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