Kingspan Group plc's (ISE:KRX) P/E Is On The Mark

With a price-to-earnings (or "P/E") ratio of 19.9x Kingspan Group plc (ISE:KRX) may be sending bearish signals at the moment, given that almost half of all companies in Ireland have P/E ratios under 13x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's inferior to most other companies of late, Kingspan Group has been relatively sluggish. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Kingspan Group

Keen to find out how analysts think Kingspan Group's 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 High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Kingspan Group's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a decent 8.3% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 8.6% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 9.6% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 7.5% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Kingspan 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 Kingspan 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.

We've established that Kingspan Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. 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 2 warning signs with Kingspan Group, and understanding them should be part of your investment process.

If you're unsure about the strength of Kingspan Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.