Earnings Tell The Story For Tristel Plc (LON:TSTL)
With a price-to-earnings (or "P/E") ratio of 42.6x Tristel Plc (LON:TSTL) may be sending very bearish signals at the moment, given that almost half of all companies in the United Kingdom have P/E ratios under 15x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Tristel has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Tristel
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tristel.
How Is Tristel's Growth Trending?
Tristel's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 33% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 15% as estimated by the only analyst watching the company. That would be an excellent outcome when the market is expected to decline by 6.8%.
With this information, we can see why Tristel is trading at such a high P/E compared to the market. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader market going backwards.
The Bottom Line On Tristel's P/E
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Tristel's analyst forecasts revealed that its superior earnings outlook against a shaky market is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. We still remain cautious about the company's ability to keep swimming against the current of the broader market turmoil. Although, if the company's prospects don't change they will continue to provide strong support to the share price.
Before you settle on your opinion, we've discovered 2 warning signs for Tristel that you should be aware of.
You might be able to find a better investment than Tristel. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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