Galliford Try Holdings plc (LON:GFRD) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Simply Wall St · 10/17 05:02

Galliford Try Holdings plc (LON:GFRD) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 65%.

In spite of the firm bounce in price, Galliford Try Holdings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.1x, since almost half of all companies in the United Kingdom have P/E ratios greater than 17x and even P/E's higher than 30x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Galliford Try Holdings certainly has been doing a good job lately as it's been growing earnings more 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Galliford Try Holdings

pe-multiple-vs-industry
LSE:GFRD Price to Earnings Ratio vs Industry October 17th 2024
Keen to find out how analysts think Galliford Try Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Galliford Try Holdings?

In order to justify its P/E ratio, Galliford Try Holdings would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 318%. The latest three year period has also seen an excellent 282% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 2.1% each year during the coming three years according to the five analysts following the company. That's not great when the rest of the market is expected to grow by 13% per year.

With this information, we are not surprised that Galliford Try Holdings is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Despite Galliford Try Holdings' shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Galliford Try Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Galliford Try Holdings that you should be aware of.

Of course, you might also be able to find a better stock than Galliford Try Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.