Pinning Down Groupe Bruxelles Lambert SA's (EBR:GBLB) P/E Is Difficult Right Now

With a price-to-earnings (or "P/E") ratio of 26.3x Groupe Bruxelles Lambert SA (EBR:GBLB) may be sending very bearish signals at the moment, given that almost half of all companies in Belgium have P/E ratios under 13x and even P/E's lower than 8x are not unusual. 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 growth that's superior to most other companies of late, Groupe Bruxelles Lambert 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 Groupe Bruxelles Lambert

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

Is There Enough Growth For Groupe Bruxelles Lambert?

Groupe Bruxelles Lambert's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 72% last year. The latest three year period has also seen a 14% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 12% each year over the next three years. That's shaping up to be similar to the 12% each year growth forecast for the broader market.

With this information, we find it interesting that Groupe Bruxelles Lambert is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Groupe Bruxelles Lambert's P/E

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.

We've established that Groupe Bruxelles Lambert currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Groupe Bruxelles Lambert you should be aware of, and 1 of them is a bit unpleasant.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.