Investors Interested In Whitbread plc's (LON:WTB) Earnings

With a median price-to-earnings (or "P/E") ratio of close to 16x in the United Kingdom, you could be forgiven for feeling indifferent about Whitbread plc's (LON:WTB) P/E ratio of 17.1x. 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.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Recent times have been advantageous for Whitbread as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 Whitbread

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

Does Growth Match The P/E?

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

Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 4.4% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is not materially different.

With this information, we can see why Whitbread is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

We've established that Whitbread maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

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

If these risks are making you reconsider your opinion on Whitbread, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.