There Is A Reason CRH plc's (LON:CRH) Price Is Undemanding

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 14x, you may consider CRH plc (LON:CRH) as an attractive investment with its 11x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

CRH certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

See our latest analysis for CRH

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

Is There Any Growth For CRH?

In order to justify its P/E ratio, CRH would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 130% gain to the company's bottom line. Pleasingly, EPS has also lifted 88% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 5.9% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 11% each year growth forecast for the broader market.

With this information, we can see why CRH is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On CRH's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that CRH maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for CRH with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than CRH. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.