When close to half the companies in South Africa have price-to-earnings ratios (or “P/E’s”) below 8x, you may consider Trematon Capital Investments Limited (JSE:TMT) as a stock to avoid entirely with its 30.8x P/E ratio. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s so lofty.
It looks like earnings growth has deserted Trematon Capital Investments recently, which is not something to boast about. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.
Check out our latest analysis for Trematon Capital Investments
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Trematon Capital Investments will help you shine a light on its historical performance.
Is There Enough Growth For Trematon Capital Investments?
In order to justify its P/E ratio, Trematon Capital Investments would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company’s aggregate three-year performance, which is an unsavory 21% drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 6.9% growth in the next 12 months, the company’s downward momentum based on recent medium-term earnings results is a sobering picture.
In light of this, it’s alarming that Trematon Capital Investments’ P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren’t willing to let go of their stock at any price. There’s a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.
The Bottom Line On Trematon Capital Investments’ 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 Trematon Capital Investments currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it’s very challenging to accept these prices as being reasonable.
It is also worth noting that we have found 5 warning signs for Trematon Capital Investments (2 are concerning!) that you need to take into consideration.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.
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