B&M European Value Retail S.A.'s (LON:BME) Shares Lagging The Market But So Is The Business

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may consider B&M European Value Retail S.A. (LON:BME) as an attractive investment with its 11.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for B&M European Value Retail as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for B&M European Value Retail

If you'd like to see what analysts are forecasting going forward, you should check out our free report on B&M European Value Retail.

Is There Any Growth For B&M European Value Retail?

There's an inherent assumption that a company should underperform the market for P/E ratios like B&M European Value Retail's to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.3% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 14% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 7.8% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15% each year, which is noticeably more attractive.

In light of this, it's understandable that B&M European Value Retail's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On B&M European Value Retail's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that B&M European Value Retail 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.

You always need to take note of risks, for example - B&M European Value Retail has 2 warning signs we think you should be aware of.

You might be able to find a better investment than B&M European Value Retail. 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.