Geberit AG's (VTX:GEBN) Business Is Yet to Catch Up With Its Share Price

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 20x, you may consider Geberit AG (VTX:GEBN) as a stock to potentially avoid with its 25.8x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Geberit 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.

View our latest analysis for Geberit

Keen to find out how analysts think Geberit's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Geberit's Growth Trending?

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

If we review the last year of earnings growth, the company posted a worthy increase of 9.2%. The solid recent performance means it was also able to grow EPS by 19% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 0.2% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 9.2% per year, which is noticeably more attractive.

With this information, we find it concerning that Geberit is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Geberit'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 Geberit's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with Geberit.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.