The Price Is Right For Jerónimo Martins, SGPS, S.A. (ELI:JMT)

Jerónimo Martins, SGPS, S.A.'s (ELI:JMT) price-to-earnings (or "P/E") ratio of 18.5x might make it look like a strong sell right now compared to the market in Portugal, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Jerónimo Martins SGPS certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Jerónimo Martins SGPS

Keen to find out how analysts think Jerónimo Martins SGPS' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Jerónimo Martins SGPS?

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

Retrospectively, the last year delivered an exceptional 31% gain to the company's bottom line. Pleasingly, EPS has also lifted 113% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 9.3% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 4.9% per annum, which is noticeably less attractive.

With this information, we can see why Jerónimo Martins SGPS is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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 Jerónimo Martins SGPS' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Jerónimo Martins SGPS with six simple checks on some of these key factors.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.