Bachem Holding AG's (VTX:BANB) P/E Is Still On The Mark Following 28% Share Price Bounce

Bachem Holding AG (VTX:BANB) shares have continued their recent momentum with a 28% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.7% in the last twelve months.

Following the firm bounce in price, Bachem Holding may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 46.8x, since almost half of all companies in Switzerland have P/E ratios under 20x and even P/E's lower than 15x 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.

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Bachem 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Bachem Holding

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

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Bachem Holding's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.1% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 20% per year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 8.5% per year, which is noticeably less attractive.

In light of this, it's understandable that Bachem 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.

The Key Takeaway

The strong share price surge has got Bachem Holding's P/E rushing to great heights as well. 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.

As we suspected, our examination of Bachem Holding's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

It is also worth noting that we have found 2 warning signs for Bachem Holding that you need to take into consideration.

If these risks are making you reconsider your opinion on Bachem 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.