Many Still Looking Away From Stadler Rail AG (VTX:SRAIL)

There wouldn't be many who think Stadler Rail AG's (VTX:SRAIL) price-to-earnings (or "P/E") ratio of 22.8x is worth a mention when the median P/E in Switzerland is similar at about 22x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Stadler Rail has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Stadler Rail

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

How Is Stadler Rail's Growth Trending?

The only time you'd be comfortable seeing a P/E like Stadler Rail's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 71% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 9.7% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 25% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 11% each year, which is noticeably less attractive.

In light of this, it's curious that Stadler Rail's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Stadler Rail currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Stadler Rail that you need to take into consideration.

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