Market Participants Recognise Goodwin PLC's (LON:GDWN) Earnings Pushing Shares 29% Higher
Goodwin PLC (LON:GDWN) shares have surged 29% in the last month and 27% over the past year, driven by strong earnings growth. The company's high P/E ratio of 29.4x suggests investor confidence in its ability to outperform the market, despite being significantly above the UK average. Goodwin's earnings increased by 46% last year, with EPS rising 93% over three years. Shareholders remain optimistic about future growth, supporting the elevated share price. A thorough analysis of Goodwin's balance sheet is recommended for assessing potential risks.
Explore Goodwin's Fair Values from the Community and select yours
Goodwin PLC (LON:GDWN) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 27% in the last year.
Since its price has surged higher, Goodwin may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 29.4x, since almost half of all companies in the United Kingdom have P/E ratios under 16x and even P/E's lower than 10x are not unusual. 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.
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Recent times have been quite advantageous for Goodwin as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Check out our latest analysis for Goodwin
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Goodwin will help you shine a light on its historical performance.
Is There Enough Growth For Goodwin?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Goodwin's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 46%. Pleasingly, EPS has also lifted 93% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Comparing that to the market, which is only predicted to deliver 20% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
With this information, we can see why Goodwin is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.
The Final Word
Shares in Goodwin have built up some good momentum lately, which has really inflated its 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 Goodwin maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Goodwin with six simple checks.
If you're unsure about the strength of Goodwin's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
