There Is A Reason Engie SA's (EPA:ENGI) Price Is Undemanding

Engie SA's (EPA:ENGI) price-to-earnings (or "P/E") ratio of 10.3x might make it look like a buy right now compared to the market in France, where around half of the companies have P/E ratios above 15x and even P/E's above 26x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Engie certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

Check out our latest analysis for Engie

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

Is There Any Growth For Engie?

Engie's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 89%. As a result, it also grew EPS by 16% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 0.3% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader market.

With this information, we can see why Engie 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 Bottom Line On Engie'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.

As we suspected, our examination of Engie's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Engie, and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Engie. 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.