RTL Group S.A.'s (ETR:RRTL) Business And Shares Still Trailing The Market




  • In Business
  • 2022-11-26 06:13:25Z
  • By Simply Wall St.
 

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 16x, you may consider RTL Group S.A. (ETR:RRTL) as an attractive investment with its 9.1x 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.

RTL Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for RTL Group

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

Is There Any Growth For RTL Group?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 46%. This means it has also seen a slide in earnings over the longer-term as EPS is down 8.8% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 2.7% per year during the coming three years according to the nine analysts following the company. That's shaping up to be materially lower than the 12% each year growth forecast for the broader market.

In light of this, it's understandable that RTL Group's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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.

We've established that RTL Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for RTL Group you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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.

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