Kardex Holding AG's (VTX:KARN) 26% Price Boost Is Out Of Tune With Earnings

Kardex Holding AG (VTX:KARN) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.4% in the last twelve months.

Following the firm bounce in price, given around half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 20x, you may consider Kardex Holding as a stock to potentially avoid with its 24.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's superior to most other companies of late, Kardex Holding has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Kardex Holding

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

How Is Kardex Holding's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Kardex Holding's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow EPS by 84% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 3.6% each year as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 10% each year growth forecast for the broader market.

With this information, we find it concerning that Kardex Holding is trading at a P/E higher than the market. 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.

What We Can Learn From Kardex Holding's P/E?

The large bounce in Kardex Holding's shares has lifted the company's P/E to a fairly high level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Kardex 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Kardex Holding with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Kardex 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.