Investors Aren't Entirely Convinced By Forbo Holding AG's (VTX:FORN) Earnings

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") above 19x, you may consider Forbo Holding AG (VTX:FORN) as an attractive investment with its 14.1x 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.

Forbo Holding could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Forbo Holding

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

Is There Any Growth For Forbo Holding?

There's an inherent assumption that a company should underperform the market for P/E ratios like Forbo Holding's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 26%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 6.5% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 8.4% per annum, which is not materially different.

In light of this, it's peculiar that Forbo Holding's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Forbo Holding's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Forbo Holding's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

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

You might be able to find a better investment than Forbo 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.