Pinning Down EMS-CHEMIE HOLDING AG's (VTX:EMSN) P/E Is Difficult Right Now

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 20x, you may consider EMS-CHEMIE HOLDING AG (VTX:EMSN) as a stock to avoid entirely with its 31.7x 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 so lofty.

EMS-CHEMIE HOLDING could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out 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?

EMS-CHEMIE 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 6.3% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 11% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 6.0% per year as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 12% per year growth forecast for the broader market.

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.

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.

We've established that EMS-CHEMIE HOLDING currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for EMS-CHEMIE HOLDING with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than EMS-CHEMIE HOLDING. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.