Take Care Before Diving Into The Deep End On Novavest Real Estate AG (VTX:NREN)

Novavest Real Estate AG’s (VTX:NREN) price-to-earnings (or “P/E”) ratio of 16.4x might make it look like a buy right now compared to the market in Switzerland, where around half of the companies have P/E ratios above 19x and even P/E’s above 30x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The earnings growth achieved at Novavest Real Estate over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn’t eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Novavest Real Estate

SWX:NREN Price Based on Past Earnings July 10th 2020
SWX:NREN Price Based on Past Earnings July 10th 2020
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Novavest Real Estate will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

The only time you’d be truly comfortable seeing a P/E as low as Novavest Real Estate’s is when the company’s growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 18% gain to the company’s bottom line. Pleasingly, EPS has also lifted 35% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to shrink 17% in the next 12 months, the company’s positive momentum based on recent medium-term earnings results is a bright spot for the moment.

In light of this, it’s quite peculiar that Novavest Real Estate’s P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Novavest Real Estate’s P/E

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.

Our examination of Novavest Real Estate revealed its growing earnings over the medium-term aren’t contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. We think potential risks might be placing significant pressure on the P/E ratio and share price. Perhaps there is some hesitation about the company’s ability to stay its recent course and swim against the current of the broader market turmoil. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

It is also worth noting that we have found 4 warning signs for Novavest Real Estate (1 doesn’t sit too well with us!) that you need to take into consideration.

You might be able to find a better investment than Novavest Real Estate. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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