Investors Interested In Sanlorenzo S.p.A.'s (BIT:SL) Earnings

By
Simply Wall St
Published
November 28, 2021
BIT:SL
Source: Shutterstock

With a price-to-earnings (or "P/E") ratio of 23.9x Sanlorenzo S.p.A. (BIT:SL) may be sending bearish signals at the moment, given that almost half of all companies in Italy have P/E ratios under 18x and even P/E's lower than 11x 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 lofty.

Recent times have been advantageous for Sanlorenzo as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Sanlorenzo

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BIT:SL Price Based on Past Earnings November 29th 2021
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sanlorenzo.

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 96% last year. Pleasingly, EPS has also lifted 243% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 19% during the coming year according to the three analysts following the company. With the market only predicted to deliver 15%, the company is positioned for a stronger earnings result.

With this information, we can see why Sanlorenzo is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Sanlorenzo's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Sanlorenzo is showing 1 warning sign in our investment analysis, you should know about.

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

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