Strabag SE (VIE:STR) Stock Rockets 41% As Investors Are Less Pessimistic Than Expected

Strabag SE (VIE:STR) shares have continued their recent momentum with a 41% gain in the last month alone. The annual gain comes to 110% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Strabag's P/E ratio of 11.9x, since the median price-to-earnings (or "P/E") ratio in Austria is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With its earnings growth in positive territory compared to the declining earnings of most other companies, Strabag has been doing quite well of late. One possibility is that the P/E is moderate because investors think the company's earnings will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Strabag

Want the full picture on analyst estimates for the company? Then our free report on Strabag will help you uncover what's on the horizon.

Is There Some Growth For Strabag?

The only time you'd be comfortable seeing a P/E like Strabag's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. EPS has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 22% during the coming year according to the dual analysts following the company. That's not great when the rest of the market is expected to grow by 13%.

With this information, we find it concerning that Strabag is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

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

Strabag's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Strabag's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Strabag (at least 2 which are a bit concerning), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.