Theon International Plc (AMS:THEON) Stocks Pounded By 26% But Not Lagging Market On Growth Or Pricing

Theon International Plc (AMS:THEON) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 117%.

In spite of the heavy fall in price, given around half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") below 17x, you may still consider Theon International as a stock to potentially avoid with its 24.1x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Theon International has been doing relatively well. 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.

Check out our latest analysis for Theon International

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

How Is Theon International's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 65% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 21% per annum over the next three years. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Theon International's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Theon International's P/E

There's still some solid strength behind Theon International's P/E, if not its share price lately. 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 Theon International maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Theon International (including 1 which shouldn't be ignored).

You might be able to find a better investment than Theon International. 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.