Earnings Tell The Story For DKSH Holding AG (VTX:DKSH)

It's not a stretch to say that DKSH Holding AG's (VTX:DKSH) price-to-earnings (or "P/E") ratio of 19.3x right now seems quite "middle-of-the-road" compared to the market in Switzerland, where the median P/E ratio is around 20x. 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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Recent times have been advantageous for DKSH Holding as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View 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?

DKSH Holding's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 18% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 4.1% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 8.0% per year as estimated by the five analysts watching the company. That's shaping up to be similar to the 9.5% per year growth forecast for the broader market.

In light of this, it's understandable that DKSH Holding's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of DKSH Holding's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for DKSH Holding with six simple checks on some of these key factors.

You might be able to find a better investment than DKSH Holding. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.