Bunge Global SA's (NYSE:BG) Low P/E No Reason For Excitement

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider Bunge Global SA (NYSE:BG) as a highly attractive investment with its 7.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Bunge Global 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. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 out of favour.

View our latest analysis for Bunge Global

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Bunge Global would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 15% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 7.3% each year as estimated by the eleven analysts watching the company. Meanwhile, the broader market is forecast to expand by 9.9% per year, which paints a poor picture.

In light of this, it's understandable that Bunge Global's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Bunge Global's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Bunge Global (1 is a bit concerning!) that we have uncovered.

If you're unsure about the strength of Bunge Global's 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.