Market Participants Recognise Gear4music (Holdings) plc's (LON:G4M) Earnings Pushing Shares 38% Higher

Despite an already strong run, Gear4music (Holdings) plc (LON:G4M) shares have been powering on, with a gain of 38% in the last thirty days. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, Gear4music (Holdings) may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 51.4x, since almost half of all companies in the United Kingdom have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Gear4music (Holdings) as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Gear4music (Holdings)

Want the full picture on analyst estimates for the company? Then our free report on Gear4music (Holdings) will help you uncover what's on the horizon.

Is There Enough Growth For Gear4music (Holdings)?

Gear4music (Holdings)'s P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 28% last year. Still, incredibly EPS has fallen 78% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 108% as estimated by the lone analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 17%, which is noticeably less attractive.

With this information, we can see why Gear4music (Holdings) 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.

The Bottom Line On Gear4music (Holdings)'s P/E

Gear4music (Holdings)'s P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Gear4music (Holdings)'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.

Plus, you should also learn about these 3 warning signs we've spotted with Gear4music (Holdings) (including 1 which can't be ignored).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.