It's not a stretch to say that Georg Fischer AG's (VTX:GF) price-to-earnings (or "P/E") ratio of 18.3x right now seems quite "middle-of-the-road" compared to the market in Switzerland, where the median P/E ratio is around 19x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Recent times have been advantageous for Georg Fischer as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Check out our latest analysis for Georg Fischer
Does Growth Match The P/E?
There's an inherent assumption that a company should be matching the market for P/E ratios like Georg Fischer's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 18%. Pleasingly, EPS has also lifted 165% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 10% per annum during the coming three years according to the five analysts following the company. That's shaping up to be similar to the 8.7% per year growth forecast for the broader market.
With this information, we can see why Georg Fischer is trading at a fairly similar P/E to the market. 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
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.
We've established that Georg Fischer maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.
Plus, you should also learn about this 1 warning sign we've spotted with Georg Fischer.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.
About SWX:GF
Georg Fischer
Engages in the provision of piping systems, and casting and machining solutions in Europe, the Americas, Asia, and internationally.
Good value average dividend payer.
