Investors Holding Back On Renault SA (EPA:RNO)

With a price-to-earnings (or "P/E") ratio of 7.8x Renault SA (EPA:RNO) may be sending bullish signals at the moment, given that almost half of all companies in France have P/E ratios greater than 14x and even P/E's higher than 24x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Renault has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Renault

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

Is There Any Growth For Renault?

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

Retrospectively, the last year delivered a frustrating 55% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 43% each year during the coming three years according to the analysts following the company. With the market only predicted to deliver 14% per annum, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Renault's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Renault'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 Renault currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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.

Before you take the next step, you should know about the 4 warning signs for Renault (1 is significant!) that we have uncovered.

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.