Landis+Gyr Group AG's (VTX:LAND) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 38.3x Landis+Gyr Group AG (VTX:LAND) may be sending very bearish signals at the moment, given that almost half of all companies in Switzerland have P/E ratios under 18x and even P/E's lower than 12x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Landis+Gyr Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Landis+Gyr Group

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

What Are Growth Metrics Telling Us About The High P/E?

Landis+Gyr Group'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.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 72%. Still, the latest three year period has seen an excellent 60% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 37% per year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 8.3% per annum growth forecast for the broader market.

In light of this, it's understandable that Landis+Gyr Group'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

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Landis+Gyr Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Landis+Gyr Group you should be aware of, and 1 of them is potentially serious.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.