There wouldn't be many who think Vistry Group PLC's (LON:VTY) price-to-earnings (or "P/E") ratio of 17x is worth a mention when the median P/E in the United Kingdom is similar at about 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.
Recent times have been advantageous for Vistry Group as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.
See our latest analysis for Vistry Group
How Is Vistry Group's Growth Trending?
In order to justify its P/E ratio, Vistry Group would need to produce growth that's similar to the market.
If we review the last year of earnings growth, the company posted a worthy increase of 10%. However, this wasn't enough as the latest three year period has seen an unpleasant 19% overall drop in EPS. 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 generate growth of 20% per year as estimated by the twelve analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 15% each year, which is noticeably less attractive.
In light of this, it's curious that Vistry Group's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
What We Can Learn From Vistry Group's P/E?
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Vistry Group currently trades on a 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 pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Vistry Group with six simple checks will allow you to discover any risks that could be an issue.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
About LSE:VTY
Solid track record with excellent balance sheet.
