U.S. markets open in 2 hours 51 minutes
  • S&P Futures

    3,627.75
    -5.00 (-0.14%)
     
  • Dow Futures

    29,926.00
    -72.00 (-0.24%)
     
  • Nasdaq Futures

    12,097.50
    +21.50 (+0.18%)
     
  • Russell 2000 Futures

    1,846.30
    -5.20 (-0.28%)
     
  • Crude Oil

    45.38
    +0.47 (+1.05%)
     
  • Gold

    1,807.50
    +2.90 (+0.16%)
     
  • Silver

    23.42
    +0.12 (+0.54%)
     
  • EUR/USD

    1.1891
    -0.0006 (-0.05%)
     
  • 10-Yr Bond

    0.8820
    0.0000 (0.00%)
     
  • Vix

    22.04
    -0.62 (-2.74%)
     
  • GBP/USD

    1.3324
    -0.0035 (-0.26%)
     
  • USD/JPY

    104.4870
    +0.0070 (+0.01%)
     
  • BTC-USD

    19,240.31
    +386.33 (+2.05%)
     
  • CMC Crypto 200

    382.06
    +12.31 (+3.33%)
     
  • FTSE 100

    6,398.96
    -33.21 (-0.52%)
     
  • Nikkei 225

    26,296.86
    +131.27 (+0.50%)
     

Subdued Growth No Barrier To Gattaca plc (LON:GATC) With Shares Advancing 37%

Simply Wall St
·4 min read

Gattaca plc (LON:GATC) shareholders have had their patience rewarded with a 37% share price jump in the last month. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Following the firm bounce in price, Gattaca's price-to-earnings (or "P/E") ratio of 41x 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 19x and even P/E's below 11x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

For example, consider that Gattaca's financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, 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.

Check out our latest analysis for Gattaca

pe
pe

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Gattaca's earnings, revenue and cash flow.

Does Growth Match The High P/E?

Gattaca'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.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 69%. This means it has also seen a slide in earnings over the longer-term as EPS is down 92% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 9.8% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that Gattaca's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Gattaca's P/E

Gattaca'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.

Our examination of Gattaca revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Gattaca is showing 5 warning signs in our investment analysis, and 1 of those is concerning.

You might be able to find a better investment than Gattaca. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.