Sulzer Ltd's (VTX:SUN) Shares May Have Run Too Fast Too Soon

With a median price-to-earnings (or "P/E") ratio of close to 21x in Switzerland, you could be forgiven for feeling indifferent about Sulzer Ltd's (VTX:SUN) P/E ratio of 18.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Sulzer certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 Sulzer

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

What Are Growth Metrics Telling Us About The P/E?

Sulzer's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. The strong recent performance means it was also able to grow EPS by 114% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 8.2% per year during the coming three years according to the seven analysts following the company. That's shaping up to be materially lower than the 13% per year growth forecast for the broader market.

With this information, we find it interesting that Sulzer is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Sulzer's 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.

Our examination of Sulzer's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Sulzer with six simple checks will allow you to discover any risks that could be an issue.

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