Danieli & C. Officine Meccaniche S.p.A.'s (BIT:DAN) Shares Lagging The Market But So Is The Business

Danieli & C. Officine Meccaniche S.p.A.'s (BIT:DAN) price-to-earnings (or "P/E") ratio of 9.2x 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 27x are quite common. 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 Danieli & C. Officine Meccaniche'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.

See our latest analysis for Danieli & C. Officine Meccaniche

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Danieli & C. Officine Meccaniche.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Danieli & C. Officine Meccaniche's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see EPS up by 289% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 5.4% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 14% each year growth forecast for the broader market.

With this information, we can see why Danieli & C. Officine Meccaniche 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 Danieli & C. Officine Meccaniche's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Danieli & C. Officine Meccaniche 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Danieli & C. Officine Meccaniche 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.