Positive Sentiment Still Eludes DX (Group) plc (LON:DX.) Following 27% Share Price Slump
DX (Group) plc (LON:DX.) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 25% share price drop.
After such a large drop in price, given close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 12x, you may consider DX (Group) as an attractive investment with its 8.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been advantageous for DX (Group) as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
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How Is DX (Group)'s Growth Trending?
In order to justify its P/E ratio, DX (Group) would need to produce sluggish growth that's trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 298% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next year should generate growth of 6.4% as estimated by the dual analysts watching the company. With the market predicted to deliver 6.6% growth , the company is positioned for a comparable earnings result.
In light of this, it's peculiar that DX (Group)'s P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Final Word
DX (Group)'s recently weak share price has pulled its P/E below most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of DX (Group)'s analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
Having said that, be aware DX (Group) is showing 1 warning sign in our investment analysis, you should know about.
If these risks are making you reconsider your opinion on DX (Group), explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
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