Compagnie Financière Richemont SA's (VTX:CFR) P/E Still Appears To Be Reasonable

With a median price-to-earnings (or "P/E") ratio of close to 18x in Switzerland, you could be forgiven for feeling indifferent about Compagnie Financière Richemont SA's (VTX:CFR) P/E ratio of 18.2x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been advantageous for Compagnie Financière Richemont as its earnings have been rising faster than most other companies. 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.

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Does Growth Match The P/E?

Compagnie Financière Richemont's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 29% last year. Pleasingly, EPS has also lifted 1,614% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 8.3% per annum as estimated by the analysts watching the company. That's shaping up to be similar to the 8.7% per annum growth forecast for the broader market.

With this information, we can see why Compagnie Financière Richemont is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Compagnie Financière Richemont's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Compagnie Financière Richemont that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.