Fewer Investors Than Expected Jumping On Edgewell Personal Care Company (NYSE:EPC)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Edgewell Personal Care Company (NYSE:EPC) as an attractive investment with its 14.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Edgewell Personal Care 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.

Check out our latest analysis for Edgewell Personal Care

Keen to find out how analysts think Edgewell Personal Care's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Edgewell Personal Care?

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

Retrospectively, the last year delivered a decent 3.0% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 41% 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 14% per annum during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.

In light of this, it's peculiar that Edgewell Personal Care's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Edgewell Personal Care's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Edgewell Personal Care has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're unsure about the strength of Edgewell Personal Care's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.