Transense Technologies plc (LON:TRT) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Transense Technologies plc (LON:TRT) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 74% in the last year.

Even after such a large jump in price, given about half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Transense Technologies as an attractive investment with its 13.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Transense Technologies as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Transense Technologies

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Transense Technologies.

Is There Any Growth For Transense Technologies?

The only time you'd be truly comfortable seeing a P/E as low as Transense Technologies' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 0.1% during the coming year according to the sole analyst following the company. Meanwhile, the rest of the market is forecast to expand by 19%, which is noticeably more attractive.

With this information, we can see why Transense Technologies is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Transense Technologies' P/E?

Despite Transense Technologies' shares building up a head of steam, its P/E still lags most other companies. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Transense Technologies' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Transense Technologies is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Transense Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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