SIG Group AG's (VTX:SIGN) Popularity With Investors Is Clear

When close to half the companies in Switzerland have price-to-earnings ratios (or "P/E's") below 20x, you may consider SIG Group AG (VTX:SIGN) as a stock to potentially avoid with its 27x 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 as high as it is.

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SIG Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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.

View our latest analysis for SIG Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SIG Group.

Is There Enough Growth For SIG Group?

There's an inherent assumption that a company should outperform the market for P/E ratios like SIG Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 22% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 18% per year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 10% each year growth forecast for the broader market.

With this information, we can see why SIG Group is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that SIG Group 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for SIG Group you should know about.

Of course, you might also be able to find a better stock than SIG Group. 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.