Market Participants Recognise Thomson Medical Group Limited's (SGX:A50) Earnings

When close to half the companies in Singapore have price-to-earnings ratios (or "P/E's") below 10x, you may consider Thomson Medical Group Limited (SGX:A50) as a stock to avoid entirely with its 41.4x 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.

Recent times have been quite advantageous for Thomson Medical Group as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Thomson Medical Group

We 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 Thomson Medical Group's earnings, revenue and cash flow.

Is There Enough Growth For Thomson Medical Group?

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

If we review the last year of earnings growth, the company posted a terrific increase of 277%. The latest three year period has also seen an excellent 628% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 4.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Thomson Medical Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Thomson Medical Group maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Thomson Medical Group.

You might be able to find a better investment than Thomson Medical 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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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.