The Breville Group Ltd (ASX: BRG) share price has surged 60% higher since hitting its 52-week low of $5.48 in February this year to trade at around $8.75 currently.

Much of those gains are due to the company’s half-year report released on February 26 – which we covered in some detail here.

At the time the small appliances company reported a 13% lift in revenues to $331.2 million compared to the previous year, although net profit only rose 4% to $30.8 million.

The strong performance was driven by the group’s North American division which saw revenues and earnings rise by 31% and 40% respectively. That was offset by a weak performance in Australia, thanks mainly to the lower Australian dollar.

For the full 2016 financial year, Breville reported a 9.4% rise in revenues to $576.6 million and a 7.5% increase in net profit to $50.2 million compared to the prior year (FY15). North America was again the standout division with revenues and earnings rising 24% and 37% respectively. Australia and New Zealand continue to head backwards, with revenues down 1% and earnings sinking 9.4%.

That’s something that GUD Holdings Ltd (ASX: GUD) found out over the past few years and eventually forced the company to sell off its Sunbeam small appliances division.

At the current share price, Breville is trading on a trailing P/E ratio of 22.7x based on earnings per share of 38.6 cents per share. Given the company says FY2017 “is expected to be challenging”, and “anticipates global business conditions to be increasingly challenging and competitive”, it looks like shares are overpriced at current levels. A dividend yield of 3.2% (partly franked) is another disappointment.

Analysts have pencilled in a small increase in earnings in FY17, but its sounds to me that Breville will struggle to match the returns it made last financial year. Add in a relatively high P/E ratio – normally attributed to companies with high earnings growth – and there’s really only one way that Breville’s share price is headed and that’s down.

 

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.