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Earnings Tell The Story For Burberry Group plc (LON:BRBY)

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Simply Wall St
·3 min read
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Burberry Group plc's (LON:BRBY) price-to-earnings (or "P/E") ratio of 53.9x might make it look like a strong sell right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios below 17x and even P/E's below 10x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Burberry Group has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal 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.

See our latest analysis for Burberry Group

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

How Is Burberry Group's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 64%. The last three years don't look nice either as the company has shrunk EPS by 54% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 40% each year over the next three years. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

In light of this, it's understandable that Burberry Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Burberry Group's P/E

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.

As we suspected, our examination of Burberry Group'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. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Burberry Group is showing 2 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Burberry Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.