L.D.C. S.A.'s (EPA:LOUP) Earnings Are Not Doing Enough For Some Investors

L.D.C. S.A.'s (EPA:LOUP) price-to-earnings (or "P/E") ratio of 8.5x might 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.

With earnings growth that's superior to most other companies of late, L.D.C has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for L.D.C

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

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

There's an inherent assumption that a company should underperform the market for P/E ratios like L.D.C's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 60% gain to the company's bottom line. Pleasingly, EPS has also lifted 91% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 0.4% per year as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 11% per year growth forecast for the broader market.

In light of this, it's understandable that L.D.C's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On L.D.C's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for L.D.C you should be aware of.

You might be able to find a better investment than L.D.C. 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.