Risks To Shareholder Returns Are Elevated At These Prices For JDE Peet's N.V. (AMS:JDEP)

With a median price-to-earnings (or "P/E") ratio of close to 17x in the Netherlands, you could be forgiven for feeling indifferent about JDE Peet's N.V.'s (AMS:JDEP) P/E ratio of 17.4x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent earnings growth for JDE Peet's has been in line with the market. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

View our latest analysis for JDE Peet's

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What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, JDE Peet's would need to produce growth that's similar to the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 2.9% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 17% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 5.4% per annum during the coming three years according to the twelve analysts following the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader market.

In light of this, it's curious that JDE Peet's' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From JDE Peet's' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of JDE Peet's' analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 1 warning sign for JDE Peet's that we have uncovered.

If these risks are making you reconsider your opinion on JDE Peet's, 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.