Synectics plc's (LON:SNX) Earnings Are Not Doing Enough For Some Investors

Synectics plc's (LON:SNX) price-to-earnings (or "P/E") ratio of 13.2x might make it look like a buy right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios above 17x and even P/E's above 30x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Synectics 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 degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Synectics

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

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

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

If we review the last year of earnings growth, the company posted a terrific increase of 45%. The latest three year period has also seen an excellent 949% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

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

With this information, we can see why Synectics 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.

The Final Word

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.

As we suspected, our examination of Synectics' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Synectics is showing 1 warning sign in our investment analysis, you should know about.

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