Richards Packaging Income Fund (TSE:RPI.UN) Looks Just Right
When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 16x, you may consider Richards Packaging Income Fund (TSE:RPI.UN) as a stock to potentially avoid with its 24.1x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
Richards Packaging Income Fund certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
See our latest analysis for Richards Packaging Income Fund
Although there are no analyst estimates available for Richards Packaging Income Fund, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Enough Growth For Richards Packaging Income Fund?
There's an inherent assumption that a company should outperform the market for P/E ratios like Richards Packaging Income Fund's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. The strong recent performance means it was also able to grow EPS by 162% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.
This is in contrast to the rest of the market, which is expected to grow by 8.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we can see why Richards Packaging Income Fund is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Final Word
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 Richards Packaging Income Fund maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
Having said that, be aware Richards Packaging Income Fund is showing 3 warning signs in our investment analysis, you should know about.
If these risks are making you reconsider your opinion on Richards Packaging Income Fund, explore our interactive list of high quality stocks to get an idea of what else is out there.
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.
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