Earnings Not Telling The Story For DKSH Holding AG (VTX:DKSH)

With a median price-to-earnings (or "P/E") ratio of close to 21x in Switzerland, you could be forgiven for feeling indifferent about DKSH Holding AG's (VTX:DKSH) P/E ratio of 21.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, DKSH Holding's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for DKSH Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on DKSH Holding.

Is There Some Growth For DKSH Holding?

In order to justify its P/E ratio, DKSH Holding would need to produce growth that's similar to 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 5.9%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 8.6% per year as estimated by the five analysts watching the company. With the market predicted to deliver 13% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that DKSH Holding's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that DKSH Holding currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for DKSH Holding with six simple checks will allow you to discover any risks that could be an issue.

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.