Paragon Care Limited's (ASX:PGC) Price Is Right But Growth Is Lacking After Shares Rocket 30%
Despite an already strong run, Paragon Care Limited (ASX:PGC) shares have been powering on, with a gain of 30% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.
Although its price has surged higher, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 19x, you may still consider Paragon Care as an attractive investment with its 12.5x P/E ratio. However, the P/E might be low 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, Paragon Care has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 out of favour.
View our latest analysis for Paragon Care
Keen to find out how analysts think Paragon Care's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Paragon Care's Growth Trending?
In order to justify its P/E ratio, Paragon Care would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 13% per annum over the next three years. With the market predicted to deliver 18% growth per year, the company is positioned for a weaker earnings result.
With this information, we can see why Paragon Care is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What We Can Learn From Paragon Care's P/E?
The latest share price surge wasn't enough to lift Paragon Care's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Paragon Care maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Plus, you should also learn about this 1 warning sign we've spotted with Paragon Care.
You might be able to find a better investment than Paragon Care. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
