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華爾街日報What Gaztransport & Technigaz SA's (EPA:GTT) P/E Is Not Telling You
It's not a stretch to say that Gaztransport & Technigaz SA's (EPA:GTT) price-to-earnings (or "P/E") ratio of 16.4x right now seems quite "middle-of-the-road" compared to the market in France, where the median P/E ratio is around 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Gaztransport & Technigaz has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient 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 not quite in favour.
View our latest analysis for Gaztransport & Technigaz
How Is Gaztransport & Technigaz's Growth Trending?
The only time you'd be comfortable seeing a P/E like Gaztransport & Technigaz's is when the company's growth is tracking the market closely.
Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. The latest three year period has also seen an excellent 194% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 6.3% per year as estimated by the nine analysts watching the company. That's shaping up to be materially lower than the 14% per year growth forecast for the broader market.
With this information, we find it interesting that Gaztransport & Technigaz is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.
The Final Word
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our examination of Gaztransport & Technigaz's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Gaztransport & Technigaz that you should be aware of.
If these risks are making you reconsider your opinion on Gaztransport & Technigaz, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.