Pinning Down Chocoladefabriken Lindt & Sprüngli AG's (VTX:LISN) P/E Is Difficult Right Now

With a price-to-earnings (or "P/E") ratio of 45.3x Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN) may be sending very bearish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios under 20x and even P/E's lower than 14x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Chocoladefabriken Lindt & Sprüngli could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, 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.

Check out our latest analysis for Chocoladefabriken Lindt & Sprüngli

Keen to find out how analysts think Chocoladefabriken Lindt & Sprüngli's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Chocoladefabriken Lindt & Sprüngli?

In order to justify its P/E ratio, Chocoladefabriken Lindt & Sprüngli would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow EPS by an impressive 42% in total over the last three years. 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 year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 8.8% per annum, which is not materially different.

In light of this, it's curious that Chocoladefabriken Lindt & Sprüngli's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Final Word

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.

Our examination of Chocoladefabriken Lindt & Sprüngli's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Chocoladefabriken Lindt & Sprüngli with six simple checks.

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.