Yahoo Finance Market Cool On Intelligent Ultrasound Group plc's (LON:IUG) Earnings Pushing Shares 29% Lower
Intelligent Ultrasound Group plc (LON:IUG) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.
Even after such a large drop in price, Intelligent Ultrasound Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -12.3x, since almost half of all companies in the United Kingdom have P/E ratios greater than 15x and even P/E's higher than 29x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Recent times have been advantageous for Intelligent Ultrasound Group as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
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Does Growth Match The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Intelligent Ultrasound Group's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 19% 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. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 29% over the next year. With the market only predicted to deliver 7.6%, the company is positioned for a stronger earnings result.
In light of this, it's peculiar that Intelligent Ultrasound Group's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Key Takeaway
Intelligent Ultrasound Group's P/E looks about as weak as its stock price lately. 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.
Our examination of Intelligent Ultrasound Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
And what about other risks? Every company has them, and we've spotted 3 warning signs for Intelligent Ultrasound Group (of which 1 doesn't sit too well with us!) you should know about.
If these risks are making you reconsider your opinion on Intelligent Ultrasound Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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.
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