Currys plc (LON:CURY) Surges 29% Yet Its Low P/E Is No Reason For Excitement

Currys plc (LON:CURY) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 62%.

Although its price has surged higher, given about half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Currys as an attractive investment with its 14.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings growth that's superior to most other companies of late, Currys has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Currys

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Currys.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Currys would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 295% gain to the company's bottom line. The latest three year period has also seen an excellent 61% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 7.5% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is noticeably more attractive.

With this information, we can see why Currys is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Currys' P/E?

Despite Currys' shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Currys maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Currys with six simple checks.

If you're unsure about the strength of Currys' 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.