GROUPE SFPI SA (EPA:SFPI) Soars 33% But It's A Story Of Risk Vs Reward

GROUPE SFPI SA (EPA:SFPI) shares have had a really impressive month, gaining 33% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, GROUPE SFPI may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.2x, since almost half of all companies in France have P/E ratios greater than 15x and even P/E's higher than 28x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

GROUPE SFPI hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for GROUPE SFPI

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

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 37%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

With this information, we find it odd that GROUPE SFPI is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Despite GROUPE SFPI's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that GROUPE SFPI currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for GROUPE SFPI that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.