Investors Holding Back On Bouygues SA (EPA:EN)

When close to half the companies in France have price-to-earnings ratios (or "P/E's") above 15x, you may consider Bouygues SA (EPA:EN) as an attractive investment with its 11x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Bouygues has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. 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.

See our latest analysis for Bouygues

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

Is There Any Growth For Bouygues?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.5%. As a result, earnings from three years ago have also fallen 25% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 15% per annum during the coming three years according to the eleven analysts following the company. With the market predicted to deliver 15% growth each year, the company is positioned for a comparable earnings result.

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

The Key Takeaway

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 Bouygues' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 1 warning sign for Bouygues that you should be aware of.

Of course, you might also be able to find a better stock than Bouygues. 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.