Earnings Tell The Story For Genuit Group plc (LON:GEN) As Its Stock Soars 25%

The Genuit Group plc (LON:GEN) share price has done very well over the last month, posting an excellent gain of 25%. The last 30 days bring the annual gain to a very sharp 42%.

Since its price has surged higher, given close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 15x, you may consider Genuit Group as a stock to avoid entirely with its 27.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Genuit Group has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Genuit Group

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

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Genuit Group's to be considered reasonable.

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 26%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 13% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 25% per annum during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 12% per annum, which is noticeably less attractive.

With this information, we can see why Genuit 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

Shares in Genuit Group have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Genuit Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for Genuit Group that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.