Yahoo Finance Brewin Dolphin Holdings PLC (LON:BRW) Looks Inexpensive But Perhaps Not Attractive Enough
When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 18x, you may consider Brewin Dolphin Holdings PLC (LON:BRW) as an attractive investment with its 14.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
There hasn't been much to differentiate Brewin Dolphin Holdings' and the market's retreating earnings lately. It might be that many expect the company's earnings performance to degrade further, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. In saying that, existing shareholders may feel hopeful about the share price if the company's earnings continue tracking the market.
View our latest analysis for Brewin Dolphin Holdings
Keen to find out how analysts think Brewin Dolphin Holdings' future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Brewin Dolphin Holdings' is when the company's growth is on track to lag the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. The last three years don't look nice either as the company has shrunk EPS by 1.5% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 6.1% per year as estimated by the ten analysts watching the company. With the market predicted to deliver 15% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that Brewin Dolphin Holdings' 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.
As we suspected, our examination of Brewin Dolphin Holdings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 1 warning sign for Brewin Dolphin Holdings that you should be aware of.
If you're unsure about the strength of Brewin Dolphin Holdings' 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.
