Some Shareholders Feeling Restless Over Endeavour Group Limited's (ASX:EDV) P/E Ratio

With a median price-to-earnings (or "P/E") ratio of close to 17x in Australia, you could be forgiven for feeling indifferent about Endeavour Group Limited's (ASX:EDV) P/E ratio of 15.3x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Endeavour Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for Endeavour Group

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

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Endeavour Group's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. This means it has also seen a slide in earnings over the longer-term as EPS is down 5.9% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 6.2% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader market.

In light of this, it's curious that Endeavour Group's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Endeavour Group's 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.

Our examination of Endeavour Group's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with Endeavour Group.

If you're unsure about the strength of Endeavour Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.