Benign Growth For Proximus PLC (EBR:PROX) Underpins Its Share Price

Proximus PLC's (EBR:PROX) price-to-earnings (or "P/E") ratio of 8.1x might make it look like a buy right now compared to the market in Belgium, where around half of the companies have P/E ratios above 14x and even P/E's above 27x 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 limited.

With earnings that are retreating more than the market's of late, Proximus has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Proximus

Want the full picture on analyst estimates for the company? Then our free report on Proximus will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Proximus would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 18% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings growth is heading into negative territory, declining 3.4% per annum over the next three years. That's not great when the rest of the market is expected to grow by 11% per annum.

In light of this, it's understandable that Proximus' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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.

We've established that Proximus maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Proximus (including 2 which are a bit concerning).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.