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There wouldn't be many who think iEnergizer Limited's (LON:IBPO) price-to-earnings (or "P/E") ratio of 13.8x is worth a mention when the median P/E in the United Kingdom is similar at about 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Recent times have been quite advantageous for iEnergizer as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Does iEnergizer Have A Relatively High Or Low P/E For Its Industry?
It's plausible that iEnergizer's fairly average P/E ratio could be a result of tendencies within its own industry. The image below shows that the IT industry as a whole has a P/E ratio significantly higher than the market. So unfortunately this doesn't provide much to explain the company's ratio at all right now. Some industry P/E's don't move around a lot and right now most companies within the IT industry should be getting a strong boost. We'd highlight though, the spotlight should be on the anticipated direction of the company's earnings.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on iEnergizer will help you shine a light on its historical performance.
Is There Some Growth For iEnergizer?
The only time you'd be comfortable seeing a P/E like iEnergizer's is when the company's growth is tracking the market closely.
If we review the last year of earnings growth, the company posted a terrific increase of 42%. Pleasingly, EPS has also lifted 201% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Comparing that to the market, which is predicted to shrink 15% in the next 12 months, the company's positive momentum based on recent medium-term earnings results is a bright spot for the moment.
In light of this, it's peculiar that iEnergizer's P/E sits in line with the majority of other companies. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader market.
The Bottom Line On iEnergizer's P/E
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that iEnergizer currently trades on a lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. When we see its superior earnings with some actual growth, we assume potential risks are what might be placing pressure on the P/E ratio. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears some are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.
Before you take the next step, you should know about the 2 warning signs for iEnergizer that we have uncovered.
If these risks are making you reconsider your opinion on iEnergizer, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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