Slammed 40% Teleperformance SE (EPA:TEP) Screens Well Here But There Might Be A Catch

Teleperformance SE (EPA:TEP) shares have had a horrible month, losing 40% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

In spite of the heavy fall in price, Teleperformance's price-to-earnings (or "P/E") ratio of 8.7x might still make it look like a buy right now compared to the market in France, where around half of the companies have P/E ratios above 15x and even P/E's above 27x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times haven't been advantageous for Teleperformance as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Teleperformance

Want the full picture on analyst estimates for the company? Then our free report on Teleperformance will help you uncover what's on the horizon.

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

Teleperformance's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 6.2%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 79% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 19% per annum during the coming three years according to the analysts following the company. With the market only predicted to deliver 14% each year, the company is positioned for a stronger earnings result.

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

The Bottom Line On Teleperformance's P/E

Teleperformance's recently weak share price has pulled its P/E below most other companies. 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.

We've established that Teleperformance currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

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

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.