With A 30% Price Drop For The Blockchain Group (EPA:ALTBG) You'll Still Get What You Pay For

The The Blockchain Group (EPA:ALTBG) share price has fared very poorly over the last month, falling by a substantial 30%. Regardless, last month's decline is barely a blip on the stock's price chart as it has gained a monstrous 433% in the last year.

Although its price has dipped substantially, given close to half the companies in France have price-to-earnings ratios (or "P/E's") below 23x, you may still consider Blockchain Group as a stock to avoid entirely with its 65.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Blockchain Group has been doing quite well of late. 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.

Check out our latest analysis for Blockchain Group

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Is There Enough Growth For Blockchain Group?

In order to justify its P/E ratio, Blockchain Group would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 192% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 37% per year over the next three years. That's shaping up to be materially higher than the 22% each year growth forecast for the broader market.

With this information, we can see why Blockchain 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.

The Final Word

Even after such a strong price drop, Blockchain Group's P/E still exceeds the rest of the market significantly. 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.

As we suspected, our examination of Blockchain Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Blockchain Group (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Blockchain Group. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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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