Yahoo Finance Market Still Lacking Some Conviction On Renew Holdings plc (LON:RNWH)
With a price-to-earnings (or "P/E") ratio of 14.3x Renew Holdings plc (LON:RNWH) may be sending bullish signals at the moment, given that almost half of all companies in the United Kingdom have P/E ratios greater than 18x and even P/E's higher than 36x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent times have been pleasing for Renew Holdings as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.
View our latest analysis for Renew Holdings
Keen to find out how analysts think Renew Holdings' future stacks up against the industry? In that case, our free report is a great place to start.
What Are Growth Metrics Telling Us About The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Renew Holdings' is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a decent 5.1% gain to the company's bottom line. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 12% per annum during the coming three years according to the five analysts following the company. That's shaping up to be similar to the 13% per annum growth forecast for the broader market.
In light of this, it's peculiar that Renew Holdings' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Final Word
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 Renew Holdings currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Renew Holdings that you need to be mindful 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.
This article by Simply Wall St is general in nature. 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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