Vicat S.A.'s (EPA:VCT) Business And Shares Still Trailing The Market

With a price-to-earnings (or "P/E") ratio of 10.4x Vicat S.A. (EPA:VCT) may be sending bullish signals at the moment, given that almost half of all companies in France have P/E ratios greater than 17x and even P/E's higher than 30x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's superior to most other companies of late, Vicat has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Vicat

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

How Is Vicat's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 5.3%. Pleasingly, EPS has also lifted 35% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 3.9% per annum over the next three years. That's shaping up to be materially lower than the 13% each year growth forecast for the broader market.

With this information, we can see why Vicat is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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 Vicat 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Vicat 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 Vicat. 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.