Barry Callebaut AG (VTX:BARN) Not Flying Under The Radar

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 20x, you may consider Barry Callebaut AG (VTX:BARN) as a stock to avoid entirely with its 33.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

While the market has experienced earnings growth lately, Barry Callebaut's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Barry Callebaut

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

How Is Barry Callebaut's Growth Trending?

In order to justify its P/E ratio, Barry Callebaut would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 57%. As a result, earnings from three years ago have also fallen 51% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 45% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 13% per annum growth forecast for the broader market.

In light of this, it's understandable that Barry Callebaut's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

We've established that Barry Callebaut maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Barry Callebaut (of which 2 don't sit too well with us!) you should know about.

Of course, you might also be able to find a better stock than Barry Callebaut. 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.