What You Can Learn From Bachem Holding AG's (VTX:BANB) P/E After Its 29% Share Price Crash

By
Simply Wall St
Published
May 07, 2022
SWX:BANB
Source: Shutterstock

Bachem Holding AG (VTX:BANB) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 18% share price drop.

Even after such a large drop in price, Bachem Holding's price-to-earnings (or "P/E") ratio of 48x might still 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 17x and even P/E's below 12x 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.

Bachem Holding certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Bachem Holding

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SWX:BANB Price Based on Past Earnings May 7th 2022
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Bachem Holding's earnings, revenue and cash flow.

Is There Enough Growth For Bachem Holding?

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

If we review the last year of earnings growth, the company posted a terrific increase of 45%. Pleasingly, EPS has also lifted 126% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 5.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Bachem Holding's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

Even after such a strong price drop, Bachem Holding's P/E still exceeds the rest of the market significantly. 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.

We've established that Bachem Holding maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Bachem Holding (1 shouldn't be ignored!) that we have uncovered.

Of course, you might also be able to find a better stock than Bachem Holding. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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