Shareholders Should Be Pleased With Darden Restaurants, Inc.'s (NYSE:DRI) Price

There wouldn't be many who think Darden Restaurants, Inc.'s (NYSE:DRI) price-to-earnings (or "P/E") ratio of 18.2x is worth a mention when the median P/E in the United States is similar at about 18x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Darden Restaurants certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Darden Restaurants

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Darden Restaurants.

Is There Some Growth For Darden Restaurants?

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

Retrospectively, the last year delivered a decent 6.6% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 79% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 10% per annum as estimated by the analysts watching the company. That's shaping up to be similar to the 10% per annum growth forecast for the broader market.

With this information, we can see why Darden Restaurants is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From Darden Restaurants' 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.

As we suspected, our examination of Darden Restaurants' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Darden Restaurants that you need to be mindful of.

If you're unsure about the strength of Darden Restaurants' 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.