What You Can Learn From Andritz AG's (VIE:ANDR) P/E

There wouldn't be many who think Andritz AG's (VIE:ANDR) price-to-earnings (or "P/E") ratio of 10.8x is worth a mention when the median P/E in Austria is similar at about 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for Andritz as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Andritz

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Is There Some Growth For Andritz?

In order to justify its P/E ratio, Andritz would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 7.8% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 96% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 5.6% per annum over the next three years. With the market predicted to deliver 3.8% growth each year, the company is positioned for a comparable earnings result.

With this information, we can see why Andritz 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.

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

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 Andritz 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. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Andritz that we have uncovered.

If you're unsure about the strength of Andritz's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.