Some Confidence Is Lacking In Mondelez International, Inc.'s (NASDAQ:MDLZ) P/E

There wouldn't be many who think Mondelez International, Inc.'s (NASDAQ:MDLZ) price-to-earnings (or "P/E") ratio of 18.4x is worth a mention when the median P/E in the United States is similar at about 17x. 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.

Mondelez International 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is Mondelez International's Growth Trending?

The only time you'd be comfortable seeing a P/E like Mondelez International's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 85% last year. The strong recent performance means it was also able to grow EPS by 48% in total over the last three years. 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 3.9% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 10% per annum growth forecast for the broader market.

In light of this, it's curious that Mondelez International'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.

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.

Our examination of Mondelez International's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Mondelez International you should know about.

If these risks are making you reconsider your opinion on Mondelez International, 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.