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Investors Appear Satisfied With National Grid plc's (LON:NG.) Prospects

Simply Wall St · 5d ago

National Grid plc's (LON:NG.) price-to-earnings (or "P/E") ratio of 20x might make it look like a sell right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios below 16x and even P/E's below 10x are quite common. 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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National Grid 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for National Grid

pe-multiple-vs-industry
LSE:NG. Price to Earnings Ratio vs Industry January 5th 2026
Want the full picture on analyst estimates for the company? Then our free report on National Grid will help you uncover what's on the horizon.

How Is National Grid's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 40%. However, this wasn't enough as the latest three year period has seen a very unpleasant 30% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 17% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% each year, which is noticeably less attractive.

In light of this, it's understandable that National Grid's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From National Grid's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of National Grid'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. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for National Grid (1 shouldn't be ignored!) that you need to take into consideration.

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 low P/E).