There's Reason For Concern Over Intercede Group plc's (LON:IGP) Massive 27% Price Jump

Intercede Group plc (LON:IGP) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 290% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Intercede Group's P/E ratio of 18.6x, since the median price-to-earnings (or "P/E") ratio in the United Kingdom is also close to 17x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Intercede Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Intercede Group

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

Does Growth Match The P/E?

In order to justify its P/E ratio, Intercede Group would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 357%. The strong recent performance means it was also able to grow EPS by 245% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 62% as estimated by the one analyst watching the company. Meanwhile, the broader market is forecast to expand by 19%, which paints a poor picture.

With this information, we find it concerning that Intercede Group is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Bottom Line On Intercede Group's P/E

Intercede Group's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Intercede Group currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for Intercede Group (1 shouldn't be ignored!) that you should be aware of.

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.