Tourism technology interaction (EPA:ALTTI) shareholders will be pleased to see shares have had a stellar month, rising 27% and recovering from prior weakness. Unfortunately, last month’s gains barely made up for last year’s losses, and the stock is still down 28% in that time.
Given that nearly half of French companies trade at less than 14 times earnings (or “P/E”) after a solid price rally, you can consider Travel Technology Interactive as a stock to avoid its 18.4 times earnings/E ratio. However, we need to dig a little deeper to determine if there is a reasonable basis for the high P/E ratio.
The last few days have been good for Travel Technology Interactive, as its revenue has been growing rapidly. Many seem to expect strong earnings performance ahead of most other companies in the period ahead, increasing investors’ willingness to buy shares. If not, then existing shareholders may be a little nervous about the viability of the share price.
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Does Travel Technology Interactive have enough room to grow?
To justify its P/E ratio, Travel Technology Interactive needs to generate impressive growth that beats the market.
If we look back at last year’s earnings growth, the company posted a whopping 479% growth. Still, EPS overall is barely up compared to three years ago, which isn’t ideal. Therefore, it can be said that the company’s recent earnings growth has been inconsistent.
That’s in stark contrast to other markets, which are expected to grow 11% next year, well above the company’s recent medium-term annualized growth rate.
Given this, it’s concerning that Travel Technology Interactive trades at a higher P/E than most other companies. It seems like most investors are ignoring the fairly limited growth rates in the near term and hoping for an upturn in the company’s business outlook. Only the boldest would argue that these prices are sustainable, as a continuation of the recent earnings trend could ultimately weigh heavily on the share price.
The sharp rebound in the share price of Travel Technology Interactive has raised the company’s price-earnings ratio to a relatively high level. We would say that the power of the P/E ratio is primarily not as a valuation tool, but as a gauge of current investor sentiment and the power of future expectations.
Our review of Travel Technology Interactive shows that its three-year earnings trends have had far less impact on its high P/E ratio than we expected, as they look worse than current market expectations. Right now, we’re growing uneasy about high P/E ratios, as this earnings performance is unlikely to support such positive sentiment in the long-term. If the recent interim earnings trend continues, shareholders will be at significant risk to their investment and potential investors will risk paying an excessive premium.
It is always necessary to consider the specter of investment risk. We have identified 2 warning signs with Travel Technology Interactive (at least 1 made us a little uncomfortable), knowing them should be part of your investing process.
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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.