The Market Lifts Icape Holding S.A. (EPA:ALICA) Shares 29% But It Can Do More

Icape Holding S.A. (EPA:ALICA) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

Although its price has surged higher, it's still not a stretch to say that Icape Holding's price-to-earnings (or "P/E") ratio of 16.6x right now seems quite "middle-of-the-road" compared to the market in France, where the median P/E ratio is around 16x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's exceedingly strong of late, Icape Holding has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Icape Holding

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What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Icape Holding would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 132% gain to the company's bottom line. The latest three year period has also seen an excellent 132% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Icape Holding's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Icape Holding's P/E

Icape Holding appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Icape Holding revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Icape Holding (1 doesn't sit too well with us!) that you need to be mindful of.

If you're unsure about the strength of Icape Holding's 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.