IVE Group Limited's (ASX:IGL) Price In Tune With Earnings

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 19x, you may consider IVE Group Limited (ASX:IGL) as a stock to potentially avoid with its 21.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, IVE Group's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for IVE Group

Want the full picture on analyst estimates for the company? Then our free report on IVE Group will help you uncover what's on the horizon.

Is There Enough Growth For IVE Group?

There's an inherent assumption that a company should outperform the market for P/E ratios like IVE Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 41% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 51% per annum as estimated by the two analysts watching the company. With the market only predicted to deliver 16% each year, the company is positioned for a stronger earnings result.

With this information, we can see why IVE Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From IVE Group's P/E?

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.

We've established that IVE 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for IVE Group (2 are concerning!) that you should be aware of.

Of course, you might also be able to find a better stock than IVE 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.