Unpleasant Surprises Could Be In Store For RPM International Inc.'s (NYSE:RPM) Shares

It's not a stretch to say that RPM International Inc.'s (NYSE:RPM) price-to-earnings (or "P/E") ratio of 19.7x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 19x. 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.

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There hasn't been much to differentiate RPM International's and the market's earnings growth lately. The P/E is probably moderate because investors think this modest earnings performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

Check out our latest analysis for RPM International

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

How Is RPM International's Growth Trending?

In order to justify its P/E ratio, RPM International would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see EPS up by 31% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 7.8% over the next year. That's shaping up to be materially lower than the 16% growth forecast for the broader market.

In light of this, it's curious that RPM International's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

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 RPM 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for RPM International you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.