InterContinental Hotels Group PLC's (LON:IHG) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 31.9x InterContinental Hotels Group PLC (LON:IHG) may be sending very bearish signals at the moment, given that almost half of all companies in the United Kingdom have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

While the market has experienced earnings growth lately, InterContinental Hotels Group's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for InterContinental Hotels Group

Want the full picture on analyst estimates for the company? Then our free report on InterContinental Hotels Group will help you uncover what's on the horizon.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as InterContinental Hotels Group's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 12% 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 174% 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.

Looking ahead now, EPS is anticipated to climb by 19% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 14% each year growth forecast for the broader market.

In light of this, it's understandable that InterContinental Hotels Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From InterContinental Hotels Group's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of InterContinental Hotels 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.

Having said that, be aware InterContinental Hotels Group is showing 3 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than InterContinental Hotels 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.