Rémy Cointreau SA's (EPA:RCO) Price Is Out Of Tune With Earnings

It's not a stretch to say that Rémy Cointreau SA's (EPA:RCO) price-to-earnings (or "P/E") ratio of 14.6x right now seems quite "middle-of-the-road" compared to the market in France, where the median P/E ratio is around 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Our free stock report includes 1 warning sign investors should be aware of before investing in Rémy Cointreau. Read for free now.

Rémy Cointreau could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Rémy Cointreau

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Rémy Cointreau.

How Is Rémy Cointreau's Growth Trending?

In order to justify its P/E ratio, Rémy Cointreau would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. This means it has also seen a slide in earnings over the longer-term as EPS is down 26% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 6.2% each year as estimated by the analysts watching the company. Meanwhile, the broader market is forecast to expand by 13% per year, which paints a poor picture.

With this information, we find it concerning that Rémy Cointreau is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. 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 negative growth outlook.

The Bottom Line On Rémy Cointreau's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Rémy Cointreau's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Rémy Cointreau that you need to be mindful of.

You might be able to find a better investment than Rémy Cointreau. 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.