Victoria's Secret & Co. (NYSE:VSCO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 32% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

Although its price has dipped substantially, Victoria's Secret's price-to-earnings (or "P/E") ratio of 12x might still 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 17x and even P/E's above 32x 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.

Recent times haven't been advantageous for Victoria's Secret as its earnings have been falling quicker than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Growth For Victoria's Secret?

Victoria's Secret's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 59% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 71% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 22% per annum during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader market.

With this information, we find it odd that Victoria's Secret is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Victoria's Secret's P/E

Victoria's Secret's recently weak share price has pulled its P/E below most other companies. 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 Victoria's Secret currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Victoria's Secret you should be aware of, and 1 of them is potentially serious.

Of course, you might also be able to find a better stock than Victoria's Secret. 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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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.

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