Earnings Tell The Story For QinetiQ Group plc (LON:QQ.)

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 QinetiQ Group plc's (LON:QQ.) P/E ratio of 14.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

With earnings growth that's superior to most other companies of late, QinetiQ Group has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for QinetiQ Group

Keen to find out how analysts think QinetiQ Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is QinetiQ Group's Growth Trending?

The only time you'd be comfortable seeing a P/E like QinetiQ Group's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. Pleasingly, EPS has also lifted 104% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the seven analysts watching the company. That's shaping up to be similar to the 14% per annum growth forecast for the broader market.

With this information, we can see why QinetiQ Group is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On QinetiQ 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 QinetiQ Group's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. 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 these conditions change, they will continue to support the share price at these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for QinetiQ Group with six simple checks.

You might be able to find a better investment than QinetiQ Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.