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Market Participants Recognise Pacific Smiles Group Limited's (ASX:PSQ) Earnings

With a price-to-earnings (or "P/E") ratio of 47.1x Pacific Smiles Group Limited (ASX:PSQ) may be sending very bearish signals at the moment, given that almost half of all companies in Australia have P/E ratios under 19x and even P/E's lower than 11x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Pacific Smiles Group as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Pacific Smiles Group

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pacific Smiles Group.

How Is Pacific Smiles Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Pacific Smiles Group's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 36% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 21% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 18% each year, which is noticeably less attractive.

In light of this, it's understandable that Pacific Smiles Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Pacific Smiles Group's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Pacific Smiles Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Pacific Smiles Group that you should be aware of.

Of course, you might also be able to find a better stock than Pacific Smiles Group. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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.

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