Lacklustre Performance Is Driving First Property Group plc's (LON:FPO) Low P/E

When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 25x, you may consider First Property Group plc (LON:FPO) as an attractive investment with its 12.5x 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.

With earnings that are retreating more than the market's of late, First Property Group has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for First Property Group

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

Is There Any Growth For First Property Group?

In order to justify its P/E ratio, First Property Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 62% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 23% during the coming year according to the only analyst following the company. That's not great when the rest of the market is expected to grow by 23%.

In light of this, it's understandable that First Property Group's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From First Property 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 First Property Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with First Property Group (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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