With a median price-to-earnings (or "P/E") ratio of close to 18x in the United States, you could be forgiven for feeling indifferent about Allegion plc's (NYSE:ALLE) P/E ratio of 20.2x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Allegion's earnings growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

Does Growth Match The P/E?

Allegion's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a worthy increase of 3.2%. EPS has also lifted 29% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 11% each year during the coming three years according to the ten analysts following the company. With the market predicted to deliver 11% growth per year, the company is positioned for a comparable earnings result.

With this information, we can see why Allegion is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

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 Allegion maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Allegion you should know about.

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 low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.