Shareholders Should Be Pleased With SPIE SA's (EPA:SPIE) Price

With a price-to-earnings (or "P/E") ratio of 25.9x SPIE SA (EPA:SPIE) may be sending very bearish signals at the moment, given that almost half of all companies in France have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

SPIE certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for SPIE

Keen to find out how analysts think SPIE's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For SPIE?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 56% last year. The strong recent performance means it was also able to grow EPS by 322% 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 19% per year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13% per annum, which is noticeably less attractive.

With this information, we can see why SPIE is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On SPIE's P/E

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.

As we suspected, our examination of SPIE's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for SPIE you should be aware 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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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.