Greencore Group plc's (LON:GNC) Subdued P/E Might Signal An Opportunity

There wouldn't be many who think Greencore Group plc's (LON:GNC) price-to-earnings (or "P/E") ratio of 15.8x is worth a mention when the median P/E in the United Kingdom is similar at about 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's superior to most other companies of late, Greencore Group has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 .

How Is Greencore Group's Growth Trending?

The only time you'd be comfortable seeing a P/E like Greencore Group's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 39%. Pleasingly, EPS has also lifted 116% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 20% per year during the coming three years according to the five analysts following the company. That's shaping up to be materially higher than the 16% each year growth forecast for the broader market.

With this information, we find it interesting that Greencore Group is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

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.

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. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Greencore Group with six simple checks.

If these risks are making you reconsider your opinion on Greencore Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.