Getting In Cheap On Davide Campari-Milano N.V. (BIT:CPR) Is Unlikely

When close to half the companies in Italy have price-to-earnings ratios (or "P/E's") below 14x, you may consider Davide Campari-Milano N.V. (BIT:CPR) as a stock to avoid entirely with its 29x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Davide Campari-Milano could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Davide Campari-Milano

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

How Is Davide Campari-Milano's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Davide Campari-Milano's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 5.5%. Still, the latest three year period has seen an excellent 37% overall rise in EPS, in spite of its unsatisfying short-term performance. 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.

Turning to the outlook, the next three years should generate growth of 19% per annum as estimated by the analysts watching the company. With the market predicted to deliver 17% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's curious that Davide Campari-Milano's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Davide Campari-Milano currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Davide Campari-Milano (of which 1 is significant!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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