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There's Reason For Concern Over WiseTech Global Limited's (ASX:WTC) Price

Simply Wall St
·3-min read

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 19x, you may consider WiseTech Global Limited (ASX:WTC) as a stock to avoid entirely with its 55.8x 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, WiseTech Global has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for WiseTech Global

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Keen to find out how analysts think WiseTech Global's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For WiseTech Global?

There's an inherent assumption that a company should far outperform the market for P/E ratios like WiseTech Global's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 184%. The latest three year period has also seen an excellent 362% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 0.2% per year during the coming three years according to the eight analysts following the company. With the market predicted to deliver 19% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that WiseTech Global's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of WiseTech Global's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - WiseTech Global has 3 warning signs we think you should be aware of.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.