Why Investors Shouldn't Be Surprised By ARYZTA AG's (VTX:ARYN) P/E

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 20x, you may consider ARYZTA AG (VTX:ARYN) as a stock to potentially avoid with its 23.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been advantageous for ARYZTA as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for ARYZTA

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How Is ARYZTA's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. 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.

Turning to the outlook, the next three years should generate growth of 18% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 13% each year, which is noticeably less attractive.

With this information, we can see why ARYZTA is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On ARYZTA'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.

As we suspected, our examination of ARYZTA's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware ARYZTA is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on ARYZTA, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.