The Price Is Right For NeoGames S.A. (NASDAQ:NGMS) Even After Diving 25%

Unfortunately for some shareholders, the NeoGames S.A. (NASDAQ:NGMS) share price has dived 25% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 34% in the last year.

Even after such a large drop in price, NeoGames may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 69.5x, since almost half of all companies in the United States have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's superior to most other companies of late, NeoGames has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for NeoGames

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

How Is NeoGames' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as NeoGames' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 182% 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. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 37% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 11%, which is noticeably less attractive.

In light of this, it's understandable that NeoGames' 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.

What We Can Learn From NeoGames' P/E?

A significant share price dive has done very little to deflate NeoGames' very lofty 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 NeoGames maintains its high P/E on the strength of its forecast growth being higher than the wider market, 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. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for NeoGames that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.