When close to half the companies in Italy have price-to-earnings ratios (or "P/E's") above 15x, you may consider Pirelli & C. S.p.A. (BIT:PIRC) as an attractive investment with its 11.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
There hasn't been much to differentiate Pirelli & C's and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.
Check out our latest analysis for Pirelli & C
How Is Pirelli & C's Growth Trending?
In order to justify its P/E ratio, Pirelli & C would need to produce sluggish growth that's trailing the market.
Retrospectively, the last year delivered a decent 8.0% gain to the company's bottom line. Pleasingly, EPS has also lifted 81% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 11% per year during the coming three years according to the analysts following the company. With the market predicted to deliver 12% growth per year, the company is positioned for a comparable earnings result.
In light of this, it's peculiar that Pirelli & C's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
The Bottom Line On Pirelli & C'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 Pirelli & C currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Pirelli & C that you should be aware of.
Of course, you might also be able to find a better stock than Pirelli & C. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About BIT:PIRC
Pirelli & C
Manufactures and supplies tires for cars, motorcycles, and bicycles worldwide.
Adequate balance sheet and fair value.
