Lacklustre Performance Is Driving Proximus PLC's (EBR:PROX) Low P/E

With a price-to-earnings (or "P/E") ratio of 5.5x Proximus PLC (EBR:PROX) may be sending very bullish signals at the moment, given that almost half of all companies in Belgium have P/E ratios greater than 16x and even P/E's higher than 26x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for Proximus as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View 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.

How Is Proximus' Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Proximus' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. As a result, it also grew EPS by 9.6% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 8.7% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the broader market is forecast to expand by 11% per year, which paints a poor picture.

With this information, we are not surprised that Proximus is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Proximus' 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.

As we suspected, our examination of Proximus' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

Before you take the next step, you should know about the 3 warning signs for Proximus (1 makes us a bit uncomfortable!) that we have uncovered.

Of course, you might also be able to find a better stock than Proximus. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.