Technoprobe S.p.A.'s (BIT:TPRO) Popularity With Investors Is Under Threat From Overpricing
When close to half the companies in Italy have price-to-earnings ratios (or "P/E's") below 14x, you may consider Technoprobe S.p.A. (BIT:TPRO) as a stock to avoid entirely with its 30.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Earnings have risen at a steady rate over the last year for Technoprobe, which is generally not a bad outcome. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for TechnoprobeWe don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Technoprobe's earnings, revenue and cash flow.
Is There Enough Growth For Technoprobe?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Technoprobe's to be considered reasonable.
If we review the last year of earnings growth, the company posted a worthy increase of 4.5%. Pleasingly, EPS has also lifted 55% in aggregate from three years ago, partly 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.
This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's alarming that Technoprobe's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
What We Can Learn From Technoprobe's P/E?
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.
We've established that Technoprobe currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
You should always think about risks. Case in point, we've spotted 1 warning sign for Technoprobe you should be aware of.
If these risks are making you reconsider your opinion on Technoprobe, explore our interactive list of high quality stocks to get an idea of what else is out there.
Valuation is complex, but we're helping make it simple.
Find out whether Technoprobe is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Technoprobe S.p.A. produces and sells electronic circuits in Italy and internationally.
Flawless balance sheet with moderate growth potential.