The Price Is Right For Kerry Group plc (ISE:KRZ)

When close to half the companies in Ireland have price-to-earnings ratios (or "P/E's") below 13x, you may consider Kerry Group plc (ISE:KRZ) as a stock to avoid entirely with its 22.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Kerry Group has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Kerry Group

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

How Is Kerry Group's Growth Trending?

In order to justify its P/E ratio, Kerry Group would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 9.4%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 22% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the eleven analysts watching the company. With the market only predicted to deliver 12% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Kerry Group'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

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.

As we suspected, our examination of Kerry Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Kerry Group with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.