Interroll Holding AG (VTX:INRN) Investors Are Less Pessimistic Than Expected

Interroll Holding AG's (VTX:INRN) price-to-earnings (or "P/E") ratio of 27.9x might make it look like a sell right now compared to the market in Switzerland, where around half of the companies have P/E ratios below 20x and even P/E's below 13x are quite common. 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.

Interroll Holding could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Interroll Holding

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

Is There Enough Growth For Interroll Holding?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 5.3%. This means it has also seen a slide in earnings over the longer-term as EPS is down 16% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 6.3% per annum over the next three years. With the market predicted to deliver 13% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Interroll Holding's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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.

The Bottom Line On Interroll Holding'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.

Our examination of Interroll Holding'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. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Interroll Holding with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Interroll Holding. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.