Earnings Tell The Story For NV Bekaert SA (EBR:BEKB)

NV Bekaert SA's (EBR:BEKB) price-to-earnings (or "P/E") ratio of 57.4x might make it look like a strong sell right now compared to the market in Belgium, where around half of the companies have P/E ratios below 13x and even P/E's below 9x 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 so lofty.

While the market has experienced earnings growth lately, NV Bekaert's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for NV Bekaert

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What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, NV Bekaert would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 62%. As a result, earnings from three years ago have also fallen 90% 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 105% per year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 7.8% per year, which is noticeably less attractive.

In light of this, it's understandable that NV Bekaert's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that NV Bekaert maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for NV Bekaert that you should be aware of.

If these risks are making you reconsider your opinion on NV Bekaert, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. 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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