EMS-CHEMIE HOLDING AG's (VTX:EMSN) Shareholders Might Be Looking For Exit

EMS-CHEMIE HOLDING AG's (VTX:EMSN) price-to-earnings (or "P/E") ratio of 37.9x 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 22x and even P/E's below 13x are quite common. 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.

While the market has experienced earnings growth lately, EMS-CHEMIE HOLDING's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for EMS-CHEMIE HOLDING

If you'd like to see what analysts are forecasting going forward, you should check out our free report on EMS-CHEMIE HOLDING.

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

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 5.4% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 6.9% each year as estimated by the seven analysts watching the company. With the market predicted to deliver 11% growth per year, 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. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From EMS-CHEMIE HOLDING's P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for EMS-CHEMIE HOLDING with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.