Market Might Still Lack Some Conviction On Wickes Group plc (LON:WIX) Even After 26% Share Price Boost

Wickes Group plc (LON:WIX) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking further back, the 13% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Wickes Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 14.2x, since almost half of all companies in the United Kingdom have P/E ratios greater than 17x and even P/E's higher than 29x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Wickes Group 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.

See our latest analysis for Wickes Group

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

Does Growth Match The Low P/E?

Wickes Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 34% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the eight analysts watching the company. With the market predicted to deliver 14% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Wickes Group's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Wickes Group's P/E close to the market median. 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.

Our examination of Wickes 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. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Wickes Group, and understanding should be part of your investment process.

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.