Earnings Working Against Wagners Holding Company Limited's (ASX:WGN) Share Price

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") above 18x, you may consider Wagners Holding Company Limited (ASX:WGN) as an attractive investment with its 15.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Wagners Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Wagners Holding

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

Is There Any Growth For Wagners Holding?

In order to justify its P/E ratio, Wagners Holding would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 195% gain to the company's bottom line. Pleasingly, EPS has also lifted 48% 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.

Turning to the outlook, the next three years should generate growth of 9.9% per annum as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 16% per year, which is noticeably more attractive.

In light of this, it's understandable that Wagners Holding's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Wagners Holding's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Wagners Holding with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.