Yahoo Finance Watches of Switzerland Group plc's (LON:WOSG) Share Price Matching Investor Opinion
When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 19x, you may consider Watches of Switzerland Group plc (LON:WOSG) as a stock to avoid entirely with its 41.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Watches of Switzerland Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Watches of Switzerland Group
Keen to find out how analysts think Watches of Switzerland Group's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Growth For Watches of Switzerland Group?
The only time you'd be truly comfortable seeing a P/E as steep as Watches of Switzerland Group's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company grew earnings per share by an impressive 94% last year. Pleasingly, EPS has also lifted 59% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 33% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 13% each year, which is noticeably less attractive.
With this information, we can see why Watches of Switzerland Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Watches of Switzerland Group's P/E?
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.
As we suspected, our examination of Watches of Switzerland Group'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.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Watches of Switzerland Group, and understanding should be part of your investment process.
Of course, you might also be able to find a better stock than Watches of Switzerland Group. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
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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.
