Even With A 27% Surge, Cautious Investors Are Not Rewarding Greencore Group plc's (LON:GNC) Performance Completely

Despite an already strong run, Greencore Group plc (LON:GNC) shares have been powering on, with a gain of 27% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Greencore Group's price-to-earnings (or "P/E") ratio of 16.7x is worth a mention when the median P/E in the United Kingdom is similar at about 16x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Greencore Group certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Greencore Group

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

Does Growth Match The P/E?

In order to justify its P/E ratio, Greencore Group would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 13% per year growth forecast for the broader market.

In light of this, it's curious that Greencore Group's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Its shares have lifted substantially and now Greencore Group's P/E is also back up to the market median. 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.

Our examination of Greencore Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Greencore Group with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Greencore Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.