Is CCC SA (WSE:CCC) A Sell At Its Current PE Ratio?

CCC is priced at an enormous multiple of 53.61x based on its prior year’s earnings, which is times more expensive than the 11.98x average multiple of the Luxury. Yes, this excessive multiple can initially be deterring, but there are many company-specific elements which are not captured in such a static ratio – such as its growth outlook and debt obligations. To resolve this problem, I’ll identify some important factors to consider when judging the relative valuation of CCC’s growing business. Let's take a look below.

How much does CCC earn?

The PE multiple is useful for when a company is profitable, which is the case with CCC. This is because using PE to value an unprofitable business is flawed since the company has negative earnings (this will create a negative ratio). In this case, investors can use other useful tools like price-to-sales or price-to-book where appropriate. Historically, CCC has always managed to produce positive profits for investors. This means investors can draw some insight from using the PE ratio, but let’s see if there is a better alternative.

Is CCC in a lot of debt?

CCC has zł3.39b in debt funding to operate business. This represents more than double the amount of equity in the business! Although debt can be a cheaper source of capital, it also brings with it some risks around debt obligations and bankruptcy.

So, what does debt have to do with valuation? The company’s share price theoretically reflects the value of CCC’s equity only, but its important to account for debt, because debt also contributes to the company’s earnings capacity and risk. By using enterprise value (EV) rather than current share price, the multiple incorporates debt, allowing us to recognise both sources of funding. This is frequently used in the EV/EBITDA multiple. Comparing CCC’s multiple to the 23.96x for the industry suggests the company is overvalued, albeit to a lesser extent than the PE ratio.

Does CCC have a fast-growing outlook?

Yes. If analyst predictions are right, the company’s earnings are forecasted to grow by 33.16% every year for the next 5 years. The issue with using current earnings in the denominator of a multiple is that it doesn’t reflect this expected growth, which is a setback for trailing multiples. Since a stock’s value should be reflective of future earnings, not the past, it may be best to use upcoming earnings as the denominator. To account for this growth we can use the one-year analyst-consensus future EBITDA (this is a “forward” multiple).

The 12.85x average multiple for the industry suggests that CCC is overvalued relative to its peers, albeit to a lesser extent than what the trailing multiple indicated.

Next Steps:

Looking at relative valuation alone does not give you a complete picture of an investment. There are many important factors I have not taken into account in this article. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for ’s future growth? Take a look at our free research report of analyst consensus for ’s outlook.
2. Past Track Record: Has been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.