There's Reason For Concern Over Tyro Payments Limited's (ASX:TYR) Massive 30% Price Jump

Tyro Payments Limited (ASX:TYR) shareholders have had their patience rewarded with a 30% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 37%.

Although its price has surged higher, there still wouldn't be many who think Tyro Payments' price-to-earnings (or "P/E") ratio of 20.3x is worth a mention when the median P/E in Australia is similar at about 19x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Recent times have been advantageous for Tyro Payments as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Tyro Payments

Keen to find out how analysts think Tyro Payments' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Tyro Payments' Growth Trending?

The only time you'd be comfortable seeing a P/E like Tyro Payments' is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 205% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 14% per year as estimated by the eight analysts watching the company. With the market predicted to deliver 15% growth per annum, that's a disappointing outcome.

In light of this, it's somewhat alarming that Tyro Payments' P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Bottom Line On Tyro Payments' P/E

Its shares have lifted substantially and now Tyro Payments' P/E is also back up to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Tyro Payments currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Tyro Payments has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're unsure about the strength of Tyro Payments' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.