IXICO plc (LON:IXI) May Have Run Too Fast Too Soon With Recent 28% Price Plummet

Unfortunately for some shareholders, the IXICO plc (LON:IXI) share price has dived 28% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 44% in the last year.

Although its price has dipped substantially, IXICO may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.6x, since almost half of all companies in the United Kingdom have P/E ratios under 24x and even P/E's lower than 13x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, IXICO has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for IXICO

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

Is There Enough Growth For IXICO?

IXICO's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 119% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. 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 year should bring diminished returns, with earnings decreasing 26% as estimated by the two analysts watching the company. Meanwhile, the broader market is forecast to expand by 23%, which paints a poor picture.

In light of this, it's alarming that IXICO's P/E sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On IXICO's P/E

IXICO's P/E hasn't come down all the way after its stock plunged. 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.

Our examination of IXICO's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware IXICO is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than IXICO. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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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