With a price-to-earnings (or “P/E”) ratio of 23.9x QEX Logistics Limited (NZSE:QEX) may be sending bearish signals at the moment, given that almost half of all companies in New Zealand have P/E ratios under 19x and even P/E’s lower than 11x 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.
As an illustration, earnings have deteriorated at QEX Logistics over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.
See our latest analysis for QEX Logistics
We don’t have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on QEX Logistics’ earnings, revenue and cash flow.
Does Growth Match The High P/E?
In order to justify its P/E ratio, QEX Logistics would need to produce impressive growth in excess of the market.
Taking a look back first, the company’s earnings per share growth last year wasn’t something to get excited about as it posted a disappointing decline of 41%. The last three years don’t look nice either as the company has shrunk EPS by 53% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Comparing that to the market, which is predicted to shrink 3.0% in the next 12 months, the company’s downward momentum is still inferior based on recent medium-term annualised earnings results.
With this information, it’s strange that QEX Logistics is trading at a higher P/E in comparison. With earnings going quickly in reverse, it’s not guaranteed that the P/E has found a floor yet. Maintaining these prices will be extremely difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.
The Bottom Line On QEX Logistics’ P/E
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.
Our examination of QEX Logistics revealed its sharp three-year contraction in earnings isn’t impacting its high P/E anywhere near as much as we would have predicted, given the market is set to shrink less severely. When we see below average earnings, we suspect the share price is at risk of declining, sending the high P/E lower. We’re also cautious about the company’s ability to stay its recent medium-term course and resist even greater pain to its business from the broader market turmoil. Unless the company’s relative performance improves markedly, it’s very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider and we’ve discovered 5 warning signs for QEX Logistics (1 is a bit unpleasant!) that you should be aware of before investing here.
If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E’s below 20x.
Promoted
If you’re looking to trade QEX Logistics, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected].
