Compagnie des Alpes SA (EPA:CDA) Could Be Riskier Than It Looks

With a price-to-earnings (or "P/E") ratio of 8.9x Compagnie des Alpes SA (EPA:CDA) may be sending bullish signals at the moment, given that almost half of all companies in France have P/E ratios greater than 17x and even P/E's higher than 29x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Compagnie des Alpes has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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

In order to justify its P/E ratio, Compagnie des Alpes would need to produce sluggish growth that's trailing 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 21%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 14% each year over the next three years. With the market predicted to deliver 13% growth per annum, the company is positioned for a comparable earnings result.

With this information, we find it odd that Compagnie des Alpes is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Compagnie des Alpes' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Compagnie des Alpes' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Compagnie des Alpes that you should be aware of.

If you're unsure about the strength of Compagnie des Alpes' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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