Concurrent Technologies Plc (LON:CNC) Stock Rockets 33% As Investors Are Less Pessimistic Than Expected

Concurrent Technologies Plc (LON:CNC) shareholders have had their patience rewarded with a 33% share price jump in the last month. The last month tops off a massive increase of 112% in the last year.

Since its price has surged higher, given close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 16x, you may consider Concurrent Technologies as a stock to avoid entirely with its 25.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Concurrent Technologies 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Concurrent Technologies?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Concurrent Technologies' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 182% last year. Pleasingly, EPS has also lifted 39% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 9.1% per year over the next three years. That's shaping up to be materially lower than the 13% each year growth forecast for the broader market.

In light of this, it's alarming that Concurrent Technologies' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Concurrent Technologies' P/E?

Concurrent Technologies' P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Concurrent Technologies' analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Concurrent Technologies with six simple checks.

You might be able to find a better investment than Concurrent Technologies. 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).

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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.