Shareholders Should Be Pleased With Sirius Real Estate Limited's (LON:SRE) Price

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") below 15x, you may consider Sirius Real Estate Limited (LON:SRE) as a stock to avoid entirely with its 34.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings that are retreating more than the market's of late, Sirius Real Estate has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for Sirius Real Estate

Keen to find out how analysts think Sirius Real Estate's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Sirius Real Estate?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Sirius Real Estate's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 73%. The last three years don't look nice either as the company has shrunk EPS by 62% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 49% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

In light of this, it's understandable that Sirius Real Estate's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that Sirius Real Estate maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 5 warning signs for Sirius Real Estate (1 is potentially serious!) that you should be aware of.

Of course, you might also be able to find a better stock than Sirius Real Estate. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.