Intermediate Capital Group plc (LON:ICP) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable
The Intermediate Capital Group plc (LON:ICP) share price has done very well over the last month, posting an excellent gain of 27%. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.
Following the firm bounce in price, Intermediate Capital Group's price-to-earnings (or "P/E") ratio of 44.2x might make it look like a strong sell right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios below 20x and even P/E's below 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Recent times haven't been advantageous for Intermediate Capital Group as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Intermediate Capital Group
Want the full picture on analyst estimates for the company? Then our free report on Intermediate Capital Group will help you uncover what's on the horizon.
How Is Intermediate Capital Group's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as Intermediate Capital Group's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered a frustrating 40% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 49% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 44% per year during the coming three years according to the nine analysts following the company. That's shaping up to be materially higher than the 17% per annum growth forecast for the broader market.
With this information, we can see why Intermediate Capital Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
Intermediate Capital Group's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Intermediate Capital Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Intermediate Capital Group (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.
If you're unsure about the strength of Intermediate Capital Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
