Compagnie Financière Richemont SA (VTX:CFR) Looks Just Right With A 26% Price Jump

Compagnie Financière Richemont SA (VTX:CFR) shareholders have had their patience rewarded with a 26% share price jump in the last month. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.9% over the last year.

Even after such a large jump in price, there still wouldn't be many who think Compagnie Financière Richemont's price-to-earnings (or "P/E") ratio of 21.3x is worth a mention when the median P/E in Switzerland is similar at about 20x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Compagnie Financière Richemont has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Compagnie Financière Richemont

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

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

There's an inherent assumption that a company should be matching the market for P/E ratios like Compagnie Financière Richemont's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. The latest three year period has also seen an excellent 1,614% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 7.3% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 8.9% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Compagnie Financière Richemont's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Its shares have lifted substantially and now Compagnie Financière Richemont's P/E is also back up to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Compagnie Financière Richemont's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You always need to take note of risks, for example - Compagnie Financière Richemont has 2 warning signs we think you should be aware of.

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.