BELIMO Holding AG's (VTX:BEAN) Earnings Haven't Escaped The Attention Of Investors

BELIMO Holding AG's (VTX:BEAN) price-to-earnings (or "P/E") ratio of 56.6x might make it look like a strong sell right now compared to the market in Switzerland, where around half of the companies have P/E ratios below 19x and even P/E's below 13x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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BELIMO Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for BELIMO Holding

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

BELIMO Holding's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a decent 15% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 51% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 16% per annum over the next three years. That's shaping up to be materially higher than the 12% each year growth forecast for the broader market.

With this information, we can see why BELIMO Holding is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From BELIMO Holding's P/E?

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.

As we suspected, our examination of BELIMO Holding's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for BELIMO Holding with six simple checks.

Of course, you might also be able to find a better stock than BELIMO Holding. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.