Molson Coors Beverage Company's (NYSE:TAP) price-to-earnings (or "P/E") ratio of 11.7x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 35x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, Molson Coors Beverage has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Molson Coors Beverage

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Molson Coors Beverage.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Molson Coors Beverage would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 277% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 9.8% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is not materially different.

With this information, we find it odd that Molson Coors Beverage is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Molson Coors Beverage currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Molson Coors Beverage, and understanding should be part of your investment process.

Of course, you might also be able to find a better stock than Molson Coors Beverage. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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