Subdued Growth No Barrier To Maire S.p.A.'s (BIT:MAIRE) Price

There wouldn't be many who think Maire S.p.A.'s (BIT:MAIRE) price-to-earnings (or "P/E") ratio of 17.1x is worth a mention when the median P/E in Italy is similar at about 17x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Maire certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

See our latest analysis for Maire

Want the full picture on analyst estimates for the company? Then our free report on Maire will help you uncover what's on the horizon.

Is There Some Growth For Maire?

There's an inherent assumption that a company should be matching the market for P/E ratios like Maire's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 41%. Pleasingly, EPS has also lifted 205% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the six analysts watching the company. With the market predicted to deliver 16% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Maire is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

We've established that Maire currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Maire you should know about.

Of course, you might also be able to find a better stock than Maire. 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.