EMS-CHEMIE HOLDING AG's (VTX:EMSN) Share Price Not Quite Adding Up

EMS-CHEMIE HOLDING AG's (VTX:EMSN) price-to-earnings (or "P/E") ratio of 29.8x might make it look like a strong sell right now compared to the market in Switzerland, where around half of the companies have P/E ratios below 19x and even P/E's below 14x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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EMS-CHEMIE HOLDING could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for EMS-CHEMIE HOLDING

Keen to find out how analysts think EMS-CHEMIE HOLDING's future stacks up against the industry? In that case, our free report is a great place to start.

How Is EMS-CHEMIE HOLDING's Growth Trending?

In order to justify its P/E ratio, EMS-CHEMIE HOLDING would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. This isn't what shareholders were looking for as it means they've been left with a 16% decline in EPS over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 4.1% per year over the next three years. With the market predicted to deliver 8.9% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it concerning that EMS-CHEMIE HOLDING is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of EMS-CHEMIE HOLDING's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for EMS-CHEMIE HOLDING that you need to be mindful of.

You might be able to find a better investment than EMS-CHEMIE HOLDING. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.