Pirelli & C. S.p.A.'s (BIT:PIRC) Earnings Are Not Doing Enough For Some Investors

Pirelli & C. S.p.A.'s (BIT:PIRC) price-to-earnings (or "P/E") ratio of 11.9x might make it look like a buy right now compared to the market in Italy, where around half of the companies have P/E ratios above 15x and even P/E's above 25x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

There hasn't been much to differentiate Pirelli & C's and the market's earnings growth lately. 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.

Check out our latest analysis for Pirelli & C

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

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.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.3% last year. The latest three year period has also seen an excellent 1,359% 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.

Turning to the outlook, the next three years should generate growth of 10% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 17% each year growth forecast for the broader market.

In light of this, it's understandable that Pirelli & C's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On 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.

We've established that Pirelli & C maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Pirelli & C that you need to take into consideration.

If these risks are making you reconsider your opinion on Pirelli & C, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com