Little Excitement Around Tenaris S.A.'s (BIT:TEN) Earnings

When close to half the companies in Italy have price-to-earnings ratios (or "P/E's") above 14x, you may consider Tenaris S.A. (BIT:TEN) as an attractive investment with its 7.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Tenaris could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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 Tenaris

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tenaris.

Does Growth Match The Low P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 24%. Even so, admirably EPS has lifted 243% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to slump, contracting by 12% per annum during the coming three years according to the analysts following the company. Meanwhile, the broader market is forecast to expand by 14% per year, which paints a poor picture.

In light of this, it's understandable that Tenaris' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Tenaris' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Tenaris' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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.

Before you take the next step, you should know about the 2 warning signs for Tenaris (1 doesn't sit too well with us!) 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.