Lacklustre Performance Is Driving Eiffage SA's (EPA:FGR) Low P/E

With a price-to-earnings (or "P/E") ratio of 10x Eiffage SA (EPA:FGR) may be sending bullish signals at the moment, given that almost half of all companies in France have P/E ratios greater than 16x and even P/E's higher than 30x 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.

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Eiffage's earnings growth of late has been pretty similar to most other companies. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Eiffage

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 3.9%. This was backed up an excellent period prior to see EPS up by 46% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 5.6% per year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 13% each year growth forecast for the broader market.

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

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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Eiffage maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Eiffage that you should be aware of.

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