UPDC’s share price has surged a whopping 94.97% YTD, making it the third-best performing stock on the Nigerian Exchange as of February 21, 2025.
That’s an impressive rise, but the real question is: Does this meteoric climb truly reflect the company’s fundamentals, or is it just another speculative fever dream in the making?
Investors have been willing to assign a generous 44x PE ratio to UPDC’s earnings, a hefty premium that raises eyebrows.
For context, 44 times earnings means investors are betting heavily on the company’s future growth.
But after three out of the last five years of losses, can UPDC justify such a lofty price tag based on this year’s N0.07 per share earnings?
Also, with an EPS growth of 600% from N0.01 per share last year, is this sustainable, or should investors brace for a reality check?
UPDC seems to be riding a strong wave of growth, with revenue soaring by 123% to N11.935 billion.
Most of that growth is tied to its property development business, which contributed 88% of total sales.
The hospitality segment also crossed the N1 billion mark, signaling more expansion. Sounds like a success story, right?
While gross profit margins have improved to 35.89%, a far cry from the -40.70% seen in 2019, the net profit margin remains relatively modest at just 11.31%. That’s a lot of revenue, but it’s still a narrow window for profit.
What’s eating into UPDC’s margins? High costs are still a thorn in its side, despite improvements in operational efficiency.
A 44x PE ratio is eye-popping, but when you add in UPDC’s 600% EPS growth, things start to look a little less absurd.
Let’s do the math on the PEG (Price/Earnings to Growth) ratio:
A PEG ratio of 0.073 suggests the stock may be undervalued relative to its earnings growth. This implies that despite the high PE multiple, UPDC’s valuation might be reasonable if earnings growth is sustainable.
UPDC’s N5.2 billion in revenue from Gruppo Limited_Brompton City certainly gave the numbers a boost.
It’s all well and good to make projections, but until those developments start turning into cash, we can’t fully rely on them to fuel the stock price.
It’s all well and good to make projections, but until those developments start turning into cash, we can’t fully rely on them to fuel the stock price.
While UPDC has managed to keep its debt levels relatively low; N3.1 billion in borrowings and a negative net debt (-N8.36 billion); several macroeconomic hurdles remain.
These could hamper UPDC’s ability to sustain its recent run:
UPDC’s high PE ratio, despite its strong growth in EPS, still raises serious questions about the stock’s future trajectory.
But here’s the kicker: UPDC’s stock is priced as though the growth is set to continue at breakneck speed.
If the company’s developments don’t live up to expectations, or if macro pressures like inflation and high financing costs take their toll, investors could face a rude awakening.
In short, investors should proceed with caution, as UPDC’s stock remains a bet on the future rather than a reflection of the present.