There's Reason For Concern Over Gaztransport & Technigaz SA's (EPA:GTT) Price

When close to half the companies in France have price-to-earnings ratios (or "P/E's") below 13x, you may consider Gaztransport & Technigaz SA (EPA:GTT) as a stock to potentially avoid with its 16.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Gaztransport & Technigaz 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. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Gaztransport & Technigaz

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Is There Enough Growth For Gaztransport & Technigaz?

In order to justify its P/E ratio, Gaztransport & Technigaz would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 93% gain to the company's bottom line. The latest three year period has also seen an excellent 80% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 5.1% each year as estimated by the six analysts watching the company. With the market predicted to deliver 14% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Gaztransport & Technigaz is trading at a P/E higher than the market. 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Gaztransport & Technigaz's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Gaztransport & Technigaz currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Gaztransport & Technigaz (including 1 which makes us a bit uncomfortable).

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.