Compagnie de Saint-Gobain S.A.'s (EPA:SGO) Shares Climb 29% But Its Business Is Yet to Catch Up

Compagnie de Saint-Gobain S.A. (EPA:SGO) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Since its price has surged higher, Compagnie de Saint-Gobain's price-to-earnings (or "P/E") ratio of 17.3x might make it look like a sell right now compared to the market in France, where around half of the companies have P/E ratios below 15x and even P/E's below 9x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 1 warning sign investors should be aware of before investing in Compagnie de Saint-Gobain. Read for free now.

Recent times have been advantageous for Compagnie de Saint-Gobain as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Compagnie de Saint-Gobain

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Compagnie de Saint-Gobain.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Compagnie de Saint-Gobain's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.2% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 19% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the analysts watching the company. That's shaping up to be similar to the 13% per year growth forecast for the broader market.

With this information, we find it interesting that Compagnie de Saint-Gobain is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Compagnie de Saint-Gobain's P/E

Compagnie de Saint-Gobain's P/E is getting right up there since its shares have risen strongly. 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.

Our examination of Compagnie de Saint-Gobain's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Compagnie de Saint-Gobain that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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