Why Investors Shouldn't Be Surprised By Gaztransport & Technigaz SA's (EPA:GTT) P/E

When close to half the companies in France have price-to-earnings ratios (or "P/E's") below 15x, you may consider Gaztransport & Technigaz SA (EPA:GTT) as a stock to avoid entirely with its 23.9x P/E ratio. However, the P/E might be quite 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 it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Gaztransport & Technigaz

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Is There Enough Growth For Gaztransport & Technigaz?

The only time you'd be truly comfortable seeing a P/E as steep as Gaztransport & Technigaz's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 57%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 21% per annum over the next three years. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Gaztransport & Technigaz's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Gaztransport & Technigaz maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Gaztransport & Technigaz (1 is concerning!) that you should be aware of.

Of course, you might also be able to find a better stock than Gaztransport & Technigaz. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com