Insufficient Growth At Buzzi S.p.A. (BIT:BZU) Hampers Share Price

When close to half the companies in Italy have price-to-earnings ratios (or "P/E's") above 16x, you may consider Buzzi S.p.A. (BIT:BZU) as an attractive investment with its 8.4x 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 limited.

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Buzzi hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Buzzi's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 1.5% decrease to the company's bottom line. Even so, admirably EPS has lifted 85% 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 climb by 1.1% each year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader market.

With this information, we can see why Buzzi is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Buzzi's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Buzzi's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Buzzi with six simple checks will allow you to discover any risks that could be an issue.

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

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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.