Risks To Shareholder Returns Are Elevated At These Prices For Rémy Cointreau SA (EPA:RCO)

When close to half the companies in France have price-to-earnings ratios (or "P/E's") below 16x, you may consider Rémy Cointreau SA (EPA:RCO) as a stock to avoid entirely with its 25.5x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Rémy Cointreau has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Rémy Cointreau

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

Is There Enough Growth For Rémy Cointreau?

The only time you'd be truly comfortable seeing a P/E as steep as Rémy Cointreau's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. Still, the latest three year period has seen an excellent 104% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

Looking ahead now, EPS is anticipated to climb by 10% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 13% per year growth forecast for the broader market.

In light of this, it's alarming that Rémy Cointreau'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.

What We Can Learn From Rémy Cointreau'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 Rémy Cointreau'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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Rémy Cointreau is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Rémy Cointreau's 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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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.