Argo Blockchain plc's (LON:ARB) Stock Retreats 27% But Earnings Haven't Escaped The Attention Of Investors
The Argo Blockchain plc (LON:ARB) share price has fared very poorly over the last month, falling by a substantial 27%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.
In spite of the heavy fall in price, Argo Blockchain may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.6x, since almost half of all companies in the United Kingdom have P/E ratios under 15x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
Argo Blockchain could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
View our latest analysis for Argo Blockchain
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How Is Argo Blockchain's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as high as Argo Blockchain's is when the company's growth is on track to outshine the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 3.6%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 4,740% during the coming year according to the six analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15%, which is noticeably less attractive.
In light of this, it's understandable that Argo Blockchain's 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.
The Key Takeaway
Despite the recent share price weakness, Argo Blockchain's P/E remains higher than most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
As we suspected, our examination of Argo Blockchain's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.
Plus, you should also learn about these 4 warning signs we've spotted with Argo Blockchain (including 1 which doesn't sit too well with us).
You might be able to find a better investment than Argo Blockchain. 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.