Why We're Not Concerned About Transense Technologies plc's (LON:TRT) Share Price

There wouldn't be many who think Transense Technologies plc's (LON:TRT) price-to-earnings (or "P/E") ratio of 14.9x is worth a mention when the median P/E in the United Kingdom is similar at about 16x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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For instance, Transense Technologies' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Transense Technologies

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Transense Technologies will help you shine a light on its historical performance.

How Is Transense Technologies' Growth Trending?

Transense Technologies' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 8.7% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 73% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

It's interesting to note that the rest of the market is similarly expected to grow by 19% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Transense Technologies' P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

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

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.

We've established that Transense Technologies maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Transense Technologies (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.