Why Investors Shouldn't Be Surprised By accesso Technology Group plc's (LON:ACSO) P/E
When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 15x, you may consider accesso Technology Group plc (LON:ACSO) as a stock to avoid entirely with its 40.8x P/E ratio. 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.
With earnings that are retreating more than the market's of late, accesso Technology Group has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Check out our latest analysis for accesso Technology Group
If you'd like to see what analysts are forecasting going forward, you should check out our free report on accesso Technology Group.
What Are Growth Metrics Telling Us About The High P/E?
accesso Technology Group'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.
Retrospectively, the last year delivered a frustrating 70% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 38% per year over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.
With this information, we can see why accesso Technology 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
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.
As we suspected, our examination of accesso Technology Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
It is also worth noting that we have found 2 warning signs for accesso Technology Group that you need to take into consideration.
Of course, you might also be able to find a better stock than accesso Technology Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
