Some Confidence Is Lacking In TIL Logistics Group Limited's (NZSE:TLL) P/E

With a price-to-earnings (or "P/E") ratio of 37.3x TIL Logistics Group Limited (NZSE:TLL) may be sending very bearish signals at the moment, given that almost half of all companies in New Zealand have P/E ratios under 23x and even P/E's lower than 13x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at TIL Logistics Group over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for TIL Logistics Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on TIL Logistics Group will help you shine a light on its historical performance.

How Is TIL Logistics Group's Growth Trending?

TIL Logistics Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 51% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 72% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 3.6% shows it's an unpleasant look.

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

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of TIL Logistics Group revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware TIL Logistics Group is showing 5 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

You might be able to find a better investment than TIL Logistics Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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