R&S Group Holding AG's (VTX:RSGN) P/E Is Still On The Mark Following 32% Share Price Bounce

Despite an already strong run, R&S Group Holding AG (VTX:RSGN) shares have been powering on, with a gain of 32% in the last thirty days. The annual gain comes to 162% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, R&S Group Holding's price-to-earnings (or "P/E") ratio of 33.4x might make it look like a strong 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 15x 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 so lofty.

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R&S Group Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for R&S Group Holding

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

How Is R&S Group Holding's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 226%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 21% each year over the next three years. That's shaping up to be materially higher than the 10% per year growth forecast for the broader market.

In light of this, it's understandable that R&S Group Holding'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 R&S Group Holding's P/E

Shares in R&S Group Holding have built up some good momentum lately, which has really inflated its P/E. 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 R&S Group Holding maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 4 warning signs we've spotted with R&S Group Holding (including 2 which are a bit concerning).

Of course, you might also be able to find a better stock than R&S Group 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.