Colruyt Group N.V.'s (EBR:COLR) Share Price Could Signal Some Risk

With a median price-to-earnings (or "P/E") ratio of close to 13x in Belgium, you could be forgiven for feeling indifferent about Colruyt Group N.V.'s (EBR:COLR) P/E ratio of 12.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, Colruyt Group's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Colruyt Group

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

Is There Some Growth For Colruyt Group?

Colruyt Group's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 65% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 17% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 5.1% each year over the next three years. That's shaping up to be materially lower than the 10% per year growth forecast for the broader market.

With this information, we find it interesting that Colruyt Group is trading at a fairly similar P/E to the market. 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.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Colruyt 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Colruyt Group that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.