Take Care Before Jumping Onto COLTENE Holding AG (VTX:CLTN) Even Though It's 25% Cheaper

Explore COLTENE Holding's Fair Values from the Community and select yours

COLTENE Holding AG (VTX:CLTN) shares have had a horrible month, losing 25% after a relatively good period beforehand. The last month has meant the stock is now only up 6.8% during the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about COLTENE Holding's P/E ratio of 21x, since the median price-to-earnings (or "P/E") ratio in Switzerland is also close to 21x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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COLTENE Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

See our latest analysis for COLTENE Holding

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

COLTENE Holding'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.

If we review the last year of earnings growth, the company posted a terrific increase of 16%. However, this wasn't enough as the latest three year period has seen a very unpleasant 44% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader market.

In light of this, it's curious that COLTENE Holding's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From COLTENE Holding's P/E?

COLTENE Holding's plummeting stock price has brought its P/E right back to the rest of the market. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that COLTENE Holding currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for COLTENE Holding that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.