ICZOOM Group Inc.'s (NASDAQ:IZM) P/E Still Appears To Be Reasonable

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 16x, you may consider ICZOOM Group Inc. (NASDAQ:IZM) as a stock to avoid entirely with its 47.1x P/E ratio. 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.

For instance, ICZOOM Group's receding earnings in recent times would have to be some food for thought. 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.

View our latest analysis for ICZOOM 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 ICZOOM Group's earnings, revenue and cash flow.

How Is ICZOOM Group's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 35% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 151% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

This is in contrast to the rest of the market, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why ICZOOM 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.

What We Can Learn From ICZOOM Group'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.

As we suspected, our examination of ICZOOM Group revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for ICZOOM Group (2 are potentially serious!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than ICZOOM Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.