NSC Groupe SA's (EPA:ALNSC) Low P/E No Reason For Excitement

When close to half the companies in France have price-to-earnings ratios (or "P/E's") above 15x, you may consider NSC Groupe SA (EPA:ALNSC) as an attractive investment with its 8.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for NSC Groupe as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for NSC Groupe

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on NSC Groupe's earnings, revenue and cash flow.

How Is NSC Groupe's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as NSC Groupe's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that NSC Groupe's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that NSC Groupe maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for NSC Groupe (1 makes us a bit uncomfortable!) that we have uncovered.

Of course, you might also be able to find a better stock than NSC Groupe. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.