The Market Doesn't Like What It Sees From V-ZUG Holding AG's (VTX:VZUG) Earnings Yet

V-ZUG Holding AG's (VTX:VZUG) price-to-earnings (or "P/E") ratio of 11.9x might make it look like a buy right now compared to the market in Switzerland, where around half of the companies have P/E ratios above 19x and even P/E's above 31x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at V-ZUG Holding over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

See our latest analysis for V-ZUG Holding

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on V-ZUG Holding's earnings, revenue and cash flow.

How Is V-ZUG Holding's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as V-ZUG Holding's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 5.0% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 5.8% shows it's an unpleasant look.

In light of this, it's understandable that V-ZUG Holding's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

What We Can Learn From V-ZUG Holding's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of V-ZUG Holding revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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

Of course, you might also be able to find a better stock than V-ZUG Holding. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.