Improved Earnings Required Before L.D.C. S.A. (EPA:LOUP) Shares Find Their Feet

With a price-to-earnings (or "P/E") ratio of 12.8x L.D.C. S.A. (EPA:LOUP) may be sending bullish signals at the moment, given that almost half of all companies in France have P/E ratios greater than 16x and even P/E's higher than 33x 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.

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With earnings that are retreating more than the market's of late, L.D.C has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. 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.

Check out our latest analysis for L.D.C

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

How Is L.D.C's Growth Trending?

L.D.C'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 20%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 49% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 8.1% per annum over the next three years. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that L.D.C's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From L.D.C's 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.

We've established that L.D.C maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for L.D.C with six simple checks.

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.