With Coca-Cola HBC AG (LON:CCH) It Looks Like You'll Get What You Pay For

It's not a stretch to say that Coca-Cola HBC AG's (LON:CCH) price-to-earnings (or "P/E") ratio of 15x right now seems quite "middle-of-the-road" compared to the market in the United Kingdom, where the median P/E ratio is around 15x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Coca-Cola HBC has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, 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 Coca-Cola HBC

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Coca-Cola HBC.

How Is Coca-Cola HBC's Growth Trending?

In order to justify its P/E ratio, Coca-Cola HBC would need to produce growth that's similar to the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 38% last year. Pleasingly, EPS has also lifted 54% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 11% per year during the coming three years according to the analysts following the company. With the market predicted to deliver 12% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's understandable that Coca-Cola HBC's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Coca-Cola HBC's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Coca-Cola HBC that you should be aware of.

If you're unsure about the strength of Coca-Cola HBC's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.