Market Might Still Lack Some Conviction On Autoneum Holding AG (VTX:AUTN) Even After 25% Share Price Boost

Autoneum Holding AG (VTX:AUTN) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 18% in the last twelve months.

Although its price has surged higher, Autoneum Holding's price-to-earnings (or "P/E") ratio of 14x might still make it look like a buy right now compared to the market in Switzerland, where around half of the companies have P/E ratios above 20x and even P/E's above 32x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, Autoneum Holding's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

In order to justify its P/E ratio, Autoneum Holding would need to produce sluggish growth that's trailing 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 4.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 83% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the four analysts watching the company. With the market only predicted to deliver 10% per annum, the company is positioned for a stronger earnings result.

With this information, we find it odd that Autoneum Holding is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Autoneum Holding's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Autoneum Holding 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Autoneum Holding has 1 warning sign we think you should be aware of.

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.