Clinigen Group plc’s (LON:CLIN) price-to-earnings (or “P/E”) ratio of 62.2x 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 17x and even P/E’s below 10x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Clinigen Group certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.free report on Clinigen Group will help you uncover what’s on the horizon.
Does Growth Match The High P/E?
Clinigen 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.
Taking a look back first, we see that the company grew earnings per share by an impressive 155% last year. Pleasingly, EPS has also lifted 212% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it’s fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 85% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 16% each year, which is noticeably less attractive.
With this information, we can see why Clinigen 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.
What We Can Learn From Clinigen Group’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 Clinigen Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren’t under threat. Unless these conditions change, they will continue to provide strong support to the share price.
Don’t forget that there may be other risks. For instance, we’ve identified 3 warning signs for Clinigen Group (1 is concerning) you should be aware of.
If these risks are making you reconsider your opinion on Clinigen 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. 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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