With Georg Fischer AG (VTX:GF) It Looks Like You'll Get What You Pay For

With a price-to-earnings (or "P/E") ratio of 25.2x Georg Fischer AG (VTX:GF) may be sending bearish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios under 21x and even P/E's lower than 13x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Georg Fischer hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Georg Fischer

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

How Is Georg Fischer's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 24% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 7.8% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 14% each year, which is noticeably less attractive.

In light of this, it's understandable that Georg Fischer's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Georg Fischer's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Georg Fischer maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Georg Fischer (1 makes us a bit uncomfortable!) that you need to be mindful of.

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.