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Why Is Symantec Trading at a Premium to Analyst Estimates?

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Stock returns

Cybersecurity (HACK) leader Symantec (SYMC) has generated returns of -12.4% in the last 12 months. Since the start of 2019, the stock is up by 29%. The stock has gained 34% in the last three years and 47% in the last five years.

Symantec’s earnings per share fell at a compound annual growth rate of 3.7% in the last five years. Its net margin fell from 13.4% in 2015 to -2.6% in 2017. Sales have also been declining over the last few years.

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Symantec’s revenue fell from $6.9 billion in 2013 to $4.9 billion in 2018 and is estimated to reach $5.1 billion by 2021. It’s another company that’s growing way below the overall industry growth rate. Symantec stock is currently trading 17% below its 52-week high of $29.2 and 40% above its 52-week low of $17.43. With an RSI (relative strength index) score of 65, Symantec stock is trading closer to overbought territory.

Is Symantec stock overvalued?

Symantec’s forward 2019 PE ratio stands at 321x and for 2020 it is 47.6x. The PE ratio is very high, while revenue and earnings growth is very low. Analysts expect Symantec’s sales to fall by 4% in 2019 and rise 4.2% in 2020. Its EPS are expected to fall 5.9% in 2019 and rise by 12% in 2020.

Its EPS could grow at a compound annual growth rate of 11% over the next five years, which is too low to support its PE valuation. The stock looks grossly overvalued at current prices.

Analysts’ recommendations

Of the 29 analysts covering Symantec, 11 have given it “buy” recommendations, 16 have given it “hold” recommendations, and two have given it a “sell” recommendation. The average 12-month target price for Symantec is $23.63, which indicates a potential downside of 3% from its current price.

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