When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 16x, you may consider JTC PLC (LON:JTC) as a stock to avoid entirely with its 58.5x P/E ratio. 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.
There hasn't been much to differentiate JTC's and the market's earnings growth lately. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for JTC
How Is JTC's Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like JTC's to be considered reasonable.
Retrospectively, the last year delivered a decent 4.3% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 42% in total over the last three years. 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 41% each year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13% per year, which is noticeably less attractive.
With this information, we can see why JTC is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From JTC'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.
We've established that JTC maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
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 JTC with six simple checks.
Of course, you might also be able to find a better stock than JTC. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
About LSE:JTC
JTC
Provides fund, corporate, and private wealth services to institutional and private clients.
Excellent balance sheet with reasonable growth potential.
