Investors Holding Back On Nomad Foods Limited (NYSE:NOMD)

With a price-to-earnings (or "P/E") ratio of 14.5x Nomad Foods Limited (NYSE:NOMD) may be sending bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 33x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent earnings growth for Nomad Foods has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Check out our latest analysis for Nomad Foods

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

How Is Nomad Foods' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Nomad Foods' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a decent 3.9% gain to the company's bottom line. EPS has also lifted 5.4% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 41% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader market.

With this information, we find it odd that Nomad Foods is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Nomad Foods' 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.

Our examination of Nomad Foods' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 1 warning sign for Nomad Foods that we have uncovered.

If these risks are making you reconsider your opinion on Nomad Foods, 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.