BT Group plc's (LON:BT.A) Subdued P/E Might Signal An Opportunity

With a median price-to-earnings (or "P/E") ratio of close to 17x in the United Kingdom, you could be forgiven for feeling indifferent about BT Group plc's (LON:BT.A) P/E ratio of 15.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, BT Group's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for BT Group

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

What Are Growth Metrics Telling Us About The P/E?

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

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 55%. The last three years don't look nice either as the company has shrunk EPS by 41% 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 20% each year during the coming three years according to the analysts following the company. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that BT 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 Key Takeaway

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.

Our examination of BT Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with BT Group.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.