A Piece Of The Puzzle Missing From Multitude SE's (ETR:FRU) 30% Share Price Climb

Multitude SE (ETR:FRU) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 37% in the last year.

Even after such a large jump in price, Multitude's price-to-earnings (or "P/E") ratio of 11.1x might still make it look like a buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 18x and even P/E's above 35x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been pleasing for Multitude as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Multitude

Keen to find out how analysts think Multitude's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Multitude's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Multitude's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 36%. Pleasingly, EPS has also lifted 121% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 33% each year over the next three years. That's shaping up to be materially higher than the 14% each year growth forecast for the broader market.

In light of this, it's peculiar that Multitude's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Multitude's P/E?

The latest share price surge wasn't enough to lift Multitude's P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Multitude currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for Multitude that you need to take into consideration.

Of course, you might also be able to find a better stock than Multitude. 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.