Investors Still Waiting For A Pull Back In Datatec Limited (JSE:DTC)
With a price-to-earnings (or "P/E") ratio of 19x Datatec Limited (JSE:DTC) may be sending very bearish signals at the moment, given that almost half of all companies in South Africa have P/E ratios under 8x and even P/E's lower than 5x 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, Datatec 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 the opportunities and risks within the XX Electronic industry.
Want the full picture on analyst estimates for the company? Then our free report on Datatec will help you uncover what's on the horizon.Is There Enough Growth For Datatec?
The only time you'd be truly comfortable seeing a P/E as steep as Datatec's is when the company's growth is on track to outshine the market decidedly.
Retrospectively, the last year delivered an exceptional 220% gain to the company's bottom line. The latest three year period has also seen an excellent 585% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 24% per annum during the coming three years according to the one analyst following the company. With the market only predicted to deliver 4.4% each year, the company is positioned for a stronger earnings result.
With this information, we can see why Datatec is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Datatec's P/E
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 Datatec 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. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you take the next step, you should know about the 4 warning signs for Datatec that we have uncovered.
If these risks are making you reconsider your opinion on Datatec, explore our interactive list of high quality stocks to get an idea of what else is out there.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About JSE:DTC
Datatec
Provides information and communication technology (ICT) solutions and services worldwide.
Good value with adequate balance sheet.