Some Confidence Is Lacking In Chocoladefabriken Lindt & Sprüngli AG's (VTX:LISN) P/E

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 21x, you may consider Chocoladefabriken Lindt & Sprüngli AG (VTX:LISN) as a stock to avoid entirely with its 37.4x 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.

Chocoladefabriken Lindt & Sprüngli certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View 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.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Chocoladefabriken Lindt & Sprüngli's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. The strong recent performance means it was also able to grow EPS by 118% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 5.3% per annum during the coming three years according to the twelve analysts following the company. That's shaping up to be materially lower than the 11% each year growth forecast for the broader market.

In light of this, it's alarming that Chocoladefabriken Lindt & Sprüngli's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Chocoladefabriken Lindt & Sprüngli'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.

Our examination of Chocoladefabriken Lindt & Sprüngli's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Chocoladefabriken Lindt & Sprüngli with six simple checks on some of these key factors.

You might be able to find a better investment than Chocoladefabriken Lindt & Sprüngli. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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

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.