Buzzi S.p.A.'s (BIT:BZU) Low P/E No Reason For Excitement

With a price-to-earnings (or "P/E") ratio of 7.1x Buzzi S.p.A. (BIT:BZU) may be sending very bullish signals at the moment, given that almost half of all companies in Italy have P/E ratios greater than 15x and even P/E's higher than 26x 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.

With earnings growth that's superior to most other companies of late, Buzzi has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you 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 Buzzi

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

How Is Buzzi's Growth Trending?

In order to justify its P/E ratio, Buzzi would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 112% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 93% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings growth is heading into negative territory, declining 0.7% each year over the next three years. Meanwhile, the broader market is forecast to expand by 17% each year, which paints a poor picture.

With this information, we are not surprised that Buzzi is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Buzzi's 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.

We've established that Buzzi maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Buzzi that you need to be mindful of.

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