Investors Continue Waiting On Sidelines For Adecco Group AG (VTX:ADEN)

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") above 22x, you may consider Adecco Group AG (VTX:ADEN) as an attractive investment with its 16.9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Adecco Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered a frustrating 11% 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 21% 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 24% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Adecco Group's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Adecco Group's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Adecco Group currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Adecco Group you should be aware of, and 2 of them don't sit too well with us.

If you're unsure about the strength of Adecco 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.

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