Shareholders Should Be Pleased With PPHE Hotel Group Limited's (LON:PPH) Price

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 17x, you may consider PPHE Hotel Group Limited (LON:PPH) as a stock to potentially avoid with its 24.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been advantageous for PPHE Hotel Group as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for PPHE Hotel Group

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

Is There Enough Growth For PPHE Hotel Group?

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

If we review the last year of earnings growth, the company posted a terrific increase of 121%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 28% per annum as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 15% per year growth forecast for the broader market.

In light of this, it's understandable that PPHE Hotel 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.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of PPHE Hotel Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for PPHE Hotel Group (1 doesn't sit too well with us) you should be aware of.

If you're unsure about the strength of PPHE Hotel Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.