Why We Are Not Concerned about Thomson Medical Group Limited (SGX:A50), Share Price

Thomson Medical Group Limited (SGX:A50A price-to-earnings ratio of 38.9x may make it seem like a strong buy right now, compared to Singapore’s market where approximately half the companies have P/E ratios under 10x. Even P/E’s lower than 5x are common. The P/E may be high for a reason, and further investigation is needed to determine if it’s justifiable.

Thomson Medical Group has enjoyed a very positive period in recent years, with its earnings increasing at a rapid pace. Investors believe that strong earnings growth will allow them to outperform the wider market in the near future, which is why the P/E is likely high. It would be a great thing to believe otherwise, as you are paying a very high price for no reason.

See our latest analysis for Thomson Medical Group

Although we don’t have analyst predictions, you can check out our trend analysis to see what recent trends are setting the company up for the future. free report on Thomson Medical Group’s Earnings, revenue and cashflow.

Is Growth a Match for the High P/E?

For P/E ratios such Thomson Medical Group’s to be reasonable, it is an assumption that a company must outperform its market.

Reviewing the earnings growth over the last year, we see that the company saw a phenomenal increase of 278%. The company’s recent three-year period also saw a remarkable 629% increase in EPS. This was due to its short-term performance. The company’s recent earnings growth has been exceptional.

This is in contrast to the market which is expected to shrink 1.1% over the next twelve months. The company’s positive momentum, based on recent medium term earnings results, is a bright spot at the moment.

This information can be used to understand why Thomson Medical Group trades at a higher P/E than the market. Stock investors are willing to pay higher prices for stocks they believe will reverse the market trend. Its current earnings trajectory will not be able to withstand the headwinds facing other companies at the moment.

The Last Word

It is not sensible to rely on the price-to earnings ratio alone to decide if your stock should be sold. However, it can provide a useful guide for the company’s future prospects.

Thomson Medical Group has maintained its high P/E due to its recent three year growth, which beat forecasts in a difficult market. At this stage, investors don’t believe the potential for earnings decline is significant enough to justify a lower PE ratio. We remain cautious about whether the company can maintain its current course and keep up with the market turmoil. It’s difficult to see the share price declining strongly in the immediate future if the earnings performance is not improved.

You should also be aware of this. 1 warning sign we’ve spotted with Thomson Medical Group.

Thomson Medical Group might offer a better deal than you think. You can see this list of potential candidates if you are looking for a variety of them. No cost list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article is general in nature by Simply Wall St. Our commentary is based on historical data, analyst forecasts and other unbiased information. We do not intend to provide financial advice. This analysis does not represent a recommendation to purchase or sell any stock and it does not consider your objectives or financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Please note that our analysis might not include the most recent announcements from price-sensitive companies or qualitative material. Simply Wall St holds no position in any of the stocks mentioned.

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