What You Can Learn From Glanbia plc's (ISE:GL9) P/E

With a price-to-earnings (or "P/E") ratio of 34x Glanbia plc (ISE:GL9) may be sending very bearish signals at the moment, given that almost half of all companies in Ireland have P/E ratios under 13x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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While the market has experienced earnings growth lately, Glanbia's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Glanbia

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

Is There Enough Growth For Glanbia?

The only time you'd be truly comfortable seeing a P/E as steep as Glanbia's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 58% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 34% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 41% per year over the next three years. That's shaping up to be materially higher than the 7.5% per year growth forecast for the broader market.

With this information, we can see why Glanbia is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Glanbia's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Glanbia's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Glanbia that you need to be mindful 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.