Nomad Foods Limited (NYSE:NOMD) Could Be Riskier Than It Looks

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Nomad Foods Limited (NYSE:NOMD) as an attractive investment with its 10.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 1 warning sign investors should be aware of before investing in Nomad Foods. Read for free now.

Recent times have been advantageous for Nomad Foods as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

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.

Does Growth Match The Low P/E?

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 an exceptional 28% gain to the company's bottom line. The latest three year period has also seen an excellent 39% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 22% during the coming year according to the five analysts following the company. With the market only predicted to deliver 13%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Nomad Foods is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Nomad Foods' P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Nomad Foods that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.