Some Shareholders Feeling Restless Over Dunelm Group plc's (LON:DNLM) P/E Ratio

There wouldn't be many who think Dunelm Group plc's (LON:DNLM) price-to-earnings (or "P/E") ratio of 14.9x is worth a mention when the median P/E in the United Kingdom is similar at about 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Recent times haven't been advantageous for Dunelm Group as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Dunelm Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dunelm Group.

How Is Dunelm Group's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 3.4%. However, this wasn't enough as the latest three year period has seen an unpleasant 8.2% overall drop in EPS. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 4.8% per year over the next three years. With the market predicted to deliver 15% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Dunelm Group'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. 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

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 Dunelm Group's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. 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. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Dunelm Group 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.