With a median price-to-earnings (or "P/E") ratio of close to 16x in the United Kingdom, you could be forgiven for feeling indifferent about Andrews Sykes Group plc's (LON:ASY) P/E ratio of 17.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
For example, consider that Andrews Sykes Group's financial performance has been poor lately as it's earnings have been in decline. 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.free report on Andrews Sykes Group will help you shine a light on its historical performance.
Does Growth Match The P/E?
Andrews Sykes Group's 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.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 0.2% shows it's about the same on an annualised basis.
With this information, we can see why Andrews Sykes Group is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.
The Bottom Line On Andrews Sykes Group's 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.
As we suspected, our examination of Andrews Sykes Group revealed its three-year earnings trends are contributing to its P/E, given they look similar to current market expectations. 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. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Andrews Sykes Group that you should be aware of.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.
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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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