Investors Interested In EssilorLuxottica Société anonyme's (EPA:EL) Earnings

With a price-to-earnings (or "P/E") ratio of 43.1x EssilorLuxottica Société anonyme (EPA:EL) may be sending very bearish signals at the moment, given that almost half of all companies in France have P/E ratios under 14x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times haven't been advantageous for EssilorLuxottica Société anonyme as its earnings have been falling quicker than most other companies. 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. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for EssilorLuxottica Société anonyme

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

Does Growth Match The High P/E?

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

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 3.4%. Even so, admirably EPS has lifted 63% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 19% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 14% per annum growth forecast for the broader market.

With this information, we can see why EssilorLuxottica Société anonyme is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From EssilorLuxottica Société anonyme'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.

We've established that EssilorLuxottica Société anonyme maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for EssilorLuxottica Société anonyme with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than EssilorLuxottica Société anonyme. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.