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 10.8x 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.
Pirelli & C's earnings growth of late has been pretty similar to most other companies. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. 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.
View our latest analysis for Pirelli & C
Is There Any Growth For Pirelli & C?
In order to justify its P/E ratio, Pirelli & C would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings growth, the company posted a worthy increase of 13%. The latest three year period has also seen an excellent 1,050% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 12% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 13% per annum, which is not materially different.
In light of this, it's peculiar that Pirelli & C's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
What We Can Learn From Pirelli & C's P/E?
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.
Our examination of Pirelli & C's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like 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 more support to the share price.
Having said that, be aware Pirelli & C is showing 2 warning signs in our investment analysis, you should know about.
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.
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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.
About BIT:PIRC
Pirelli & C
Manufactures and supplies tires for cars, motorcycles, and bicycles worldwide.
Adequate balance sheet and fair value.
