Sentiment Still Eluding Sonoco Products Company (NYSE:SON)

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider Sonoco Products Company (NYSE:SON) as an attractive investment with its 14.7x 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 limited.

With earnings that are retreating more than the market's of late, Sonoco Products has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

View our latest analysis for Sonoco Products

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

How Is Sonoco Products' Growth Trending?

In order to justify its P/E ratio, Sonoco Products would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 24% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 9.8% per annum as estimated by the seven analysts watching the company. With the market predicted to deliver 10% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Sonoco Products' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Sonoco Products' P/E?

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.

Our examination of Sonoco Products' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware Sonoco Products is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Sonoco Products. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.