July 23, 2024
Investors

Bio-Techne Corporation (NASDAQ:TECH) Investors Are Less Pessimistic Than Expected


Bio-Techne Corporation’s (NASDAQ:TECH) price-to-earnings (or “P/E”) ratio of 49.5x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E’s below 9x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market’s of late, Bio-Techne has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.

Check out our latest analysis for Bio-Techne

NasdaqGS:TECH Price to Earnings Ratio vs Industry December 30th 2023

If you’d like to see what analysts are forecasting going forward, you should check out our free report on Bio-Techne.

What Are Growth Metrics Telling Us About The High P/E?

There’s an inherent assumption that a company should far outperform the market for P/E ratios like Bio-Techne’s to be considered reasonable.

Taking a look back first, the company’s earnings per share growth last year wasn’t something to get excited about as it posted a disappointing decline of 16%. This means it has also seen a slide in earnings over the longer-term as EPS is down 3.6% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 5.7% per annum as estimated by the analysts watching the company. With the market predicted to deliver 13% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Bio-Techne is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company’s business prospects, but the analyst cohort is not so confident this will happen. There’s a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

We’ve established that Bio-Techne currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. 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. This places shareholders’ investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company’s balance sheet. Take a look at our free balance sheet analysis for Bio-Techne with six simple checks on some of these key factors.

It’s important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Valuation is complex, but we’re helping make it simple.

Find out whether Bio-Techne is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology 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 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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