Earnings Not Telling The Story For Groupe Pizzorno Environnement (EPA:GPE)

Groupe Pizzorno Environnement's (EPA:GPE) price-to-earnings (or "P/E") ratio of 22.6x 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 17x and even P/E's below 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Groupe Pizzorno Environnement has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Groupe Pizzorno Environnement

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Is There Enough Growth For Groupe Pizzorno Environnement?

There's an inherent assumption that a company should outperform the market for P/E ratios like Groupe Pizzorno Environnement's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 23%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 6.6% over the next year. With the market predicted to deliver 19% growth , the company is positioned for a weaker earnings result.

With this information, we find it concerning that Groupe Pizzorno Environnement is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Groupe Pizzorno Environnement'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.

Our examination of Groupe Pizzorno Environnement's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for Groupe Pizzorno Environnement that you need to take into consideration.

If these risks are making you reconsider your opinion on Groupe Pizzorno Environnement, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.