Intermediate Capital Group plc (LON:ICG) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Intermediate Capital Group plc (LON:ICG) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.9% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that Intermediate Capital Group's price-to-earnings (or "P/E") ratio of 14.1x right now seems quite "middle-of-the-road" compared to the market in the United Kingdom, where the median P/E ratio is around 16x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 1 warning sign investors should be aware of before investing in Intermediate Capital Group. Read for free now.

While the market has experienced earnings growth lately, Intermediate Capital Group's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for Intermediate Capital Group

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

Is There Some Growth For Intermediate Capital Group?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 2.9%. As a result, earnings from three years ago have also fallen 21% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 10% each year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

With this information, we find it interesting that Intermediate Capital Group is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Intermediate Capital Group's P/E

Intermediate Capital Group appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

We've established that Intermediate Capital Group currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about this 1 warning sign we've spotted with Intermediate Capital Group.

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

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.