Many Still Looking Away From Técnicas Reunidas, S.A. (BME:TRE)

Técnicas Reunidas, S.A.'s (BME:TRE) price-to-earnings (or "P/E") ratio of 14.9x might make it look like a buy right now compared to the market in Spain, where around half of the companies have P/E ratios above 20x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Técnicas Reunidas could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Técnicas Reunidas

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Técnicas Reunidas would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 21% per year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 18% per annum growth forecast for the broader market.

In light of this, it's peculiar that Técnicas Reunidas' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Técnicas Reunidas' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Técnicas Reunidas' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Técnicas Reunidas that you should be aware of.

You might be able to find a better investment than Técnicas Reunidas. 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).

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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.