Investors Still Aren't Entirely Convinced About TP ICAP Group PLC's (LON:TCAP) Earnings Despite 28% Price Jump

TP ICAP Group PLC (LON:TCAP) shares have had a really impressive month, gaining 28% after a shaky period beforehand. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

In spite of the firm bounce in price, given close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 25x, you may still consider TP ICAP Group as an attractive investment with its 14.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, TP ICAP Group has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for TP ICAP Group

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How Is TP ICAP Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as TP ICAP Group's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 44% last year. EPS has also lifted 9.3% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 20% per year, which is not materially different.

In light of this, it's peculiar that TP ICAP Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On TP ICAP Group's P/E

Despite TP ICAP Group's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of TP ICAP Group's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for TP ICAP Group (1 is a bit unpleasant!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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This article by Simply Wall St is general in nature. 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.
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