Big Technologies PLC (LON:BIG) Investors Are Less Pessimistic Than Expected

Big Technologies PLC's (LON:BIG) price-to-earnings (or "P/E") ratio of 39.5x might make it look like a strong sell right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Big Technologies has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Big Technologies

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

How Is Big Technologies' Growth Trending?

In order to justify its P/E ratio, Big Technologies would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. The latest three year period has also seen an excellent 251% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 2.4% per year during the coming three years according to the four analysts following the company. That's not great when the rest of the market is expected to grow by 11% per annum.

With this information, we find it concerning that Big Technologies is trading at a P/E higher than the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On Big Technologies' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Big Technologies' analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Big Technologies with six simple checks.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.