TheWorks.co.uk plc (LON:WRKS) Stock Rockets 34% But Many Are Still Ignoring The Company

TheWorks.co.uk plc (LON:WRKS) shareholders have had their patience rewarded with a 34% 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.

Even after such a large jump in price, TheWorks.co.uk's price-to-earnings (or "P/E") ratio of 4.6x might still make it look like a strong buy right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios above 15x and even P/E's above 27x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

TheWorks.co.uk could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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.

Check out our latest analysis for TheWorks.co.uk

Want the full picture on analyst estimates for the company? Then our free report on TheWorks.co.uk will help you uncover what's on the horizon.

How Is TheWorks.co.uk's Growth Trending?

TheWorks.co.uk's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 62%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 12% per year over the next three years. With the market predicted to deliver 12% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that TheWorks.co.uk'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 Key Takeaway

TheWorks.co.uk's recent share price jump still sees its P/E sitting firmly flat on the ground. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of TheWorks.co.uk'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.

Having said that, be aware TheWorks.co.uk is showing 5 warning signs in our investment analysis, and 1 of those is a bit concerning.

You might be able to find a better investment than TheWorks.co.uk. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.