Stellantis N.V.'s (BIT:STLAM) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Stellantis N.V. (BIT:STLAM) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 55% share price drop in the last twelve months.

Even after such a large jump in price, Stellantis may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.1x, since almost half of all companies in Italy have P/E ratios greater than 16x and even P/E's higher than 27x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Stellantis hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Stellantis

Keen to find out how analysts think Stellantis' 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 Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Stellantis' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 69%. This means it has also seen a slide in earnings over the longer-term as EPS is down 56% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 11% per year over the next three years. With the market predicted to deliver 16% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Stellantis is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Stellantis' P/E?

Even after such a strong price move, Stellantis' P/E still trails the rest of the market significantly. 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.

As we suspected, our examination of Stellantis' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Stellantis that we have uncovered.

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.