Totally plc's (LON:TLY) price-to-earnings (or "P/E") ratio of 70.3x might make it look like a strong sell right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios below 13x and even P/E's below 6x are quite common. 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 earnings growth that's superior to most other companies of late, Totally has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Totally

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

How Is Totally's Growth Trending?

In order to justify its P/E ratio, Totally would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 239% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 90% per annum during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

In light of this, it's understandable that Totally's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Totally'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.

It is also worth noting that we have found 3 warning signs for Totally that you need to take into consideration.

Of course, you might also be able to find a better stock than Totally. 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.