Yü Group PLC's (LON:YU.) Share Price Boosted 29% But Its Business Prospects Need A Lift Too
The Yü Group PLC (LON:YU.) share price has done very well over the last month, posting an excellent gain of 29%. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.
Even after such a large jump in price, Yü Group's price-to-earnings (or "P/E") ratio of 5.5x might still make it look like a strong buy right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios above 12x and even P/E's above 24x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Yü Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
View our latest analysis for Yü Group
Keen to find out how analysts think Yü Group's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Any Growth For Yü Group?
In order to justify its P/E ratio, Yü Group would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered an exceptional 442% 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. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Looking ahead now, EPS is anticipated to climb by 4.8% per annum during the coming three years according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 9.0% each year, which is noticeably more attractive.
In light of this, it's understandable that Yü Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
Even after such a strong price move, Yü Group's P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Yü Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Yü Group that you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
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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