Infrastrutture Wireless Italiane S.p.A.'s (BIT:INW) P/E Is On The Mark

With a price-to-earnings (or "P/E") ratio of 24.8x Infrastrutture Wireless Italiane S.p.A. (BIT:INW) may be sending very bearish signals at the moment, given that almost half of all companies in Italy have P/E ratios under 14x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

The earnings growth achieved at Infrastrutture Wireless Italiane over the last year would be more than acceptable for most companies. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Infrastrutture Wireless Italiane

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How Is Infrastrutture Wireless Italiane's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Pleasingly, EPS has also lifted 91% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 22% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Infrastrutture Wireless Italiane's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

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 Infrastrutture Wireless Italiane revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Infrastrutture Wireless Italiane (at least 1 which is concerning), and understanding these should be part of your investment process.

If you're unsure about the strength of Infrastrutture Wireless Italiane's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.