LVMH Moët Hennessy - Louis Vuitton, Société Européenne's (EPA:MC) Shares May Have Run Too Fast Too Soon

With a price-to-earnings (or "P/E") ratio of 24.1x LVMH Moët Hennessy - Louis Vuitton, Société Européenne (EPA:MC) may be sending very bearish signals at the moment, given that almost half of all companies in France have P/E ratios under 14x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, LVMH Moët Hennessy - Louis Vuitton Société Européenne's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for LVMH Moët Hennessy - Louis Vuitton Société Européenne

Want the full picture on analyst estimates for the company? Then our free report on LVMH Moët Hennessy - Louis Vuitton Société Européenne will help you uncover what's on the horizon.

Is There Enough Growth For LVMH Moët Hennessy - Louis Vuitton Société Européenne?

In order to justify its P/E ratio, LVMH Moët Hennessy - Louis Vuitton Société Européenne would need to produce outstanding growth well in excess of 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 17%. Regardless, EPS has managed to lift by a handy 5.2% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is noticeably more attractive.

In light of this, it's alarming that LVMH Moët Hennessy - Louis Vuitton Société Européenne's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

The Bottom Line On LVMH Moët Hennessy - Louis Vuitton Société Européenne'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 LVMH Moët Hennessy - Louis Vuitton Société Européenne'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.

Having said that, be aware LVMH Moët Hennessy - Louis Vuitton Société Européenne is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than LVMH Moët Hennessy - Louis Vuitton Société Européenne. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.