Fluidra, S.A. (BME:FDR) Not Lagging Market On Growth Or Pricing

With a price-to-earnings (or "P/E") ratio of 27.1x Fluidra, S.A. (BME:FDR) may be sending very bearish signals at the moment, given that almost half of all companies in Spain have P/E ratios under 17x and even P/E's lower than 11x 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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Fluidra certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is Fluidra's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 33% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 34% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 21% each year as estimated by the analysts watching the company. With the market only predicted to deliver 12% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Fluidra is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Fluidra's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Fluidra 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.

Having said that, be aware Fluidra is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Fluidra, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.