Straumann Holding AG's (VTX:STMN) Popularity With Investors Is Clear

With a price-to-earnings (or "P/E") ratio of 55.1x Straumann Holding AG (VTX:STMN) may be sending very bearish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios under 18x and even P/E's lower than 12x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Straumann Holding hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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Is There Enough Growth For Straumann Holding?

Straumann Holding's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 456% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 22% per year over the next three years. With the market only predicted to deliver 8.6% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Straumann Holding's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Straumann Holding maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

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

If these risks are making you reconsider your opinion on Straumann Holding, 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.