Optimistic Investors Push Sensirion Holding AG (VTX:SENS) Shares Up 30% But Growth Is Lacking

Despite an already strong run, Sensirion Holding AG (VTX:SENS) shares have been powering on, with a gain of 30% in the last thirty days. The annual gain comes to 134% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Sensirion Holding's price-to-earnings (or "P/E") ratio of 27.6x might make it look like a sell right now compared to the market in Switzerland, where around half of the companies have P/E ratios below 21x and even P/E's below 15x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Sensirion Holding has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Sensirion Holding

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Is There Enough Growth For Sensirion Holding?

Sensirion Holding's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 490%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 17% each year during the coming three years according to the four analysts following the company. Meanwhile, the broader market is forecast to expand by 12% per year, which paints a poor picture.

With this information, we find it concerning that Sensirion Holding is trading at a P/E higher than the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh heavily on the share price eventually.

What We Can Learn From Sensirion Holding's P/E?

Sensirion Holding's P/E is getting right up there since its shares have risen strongly. 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 Sensirion Holding currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Sensirion Holding you should be aware of, and 1 of them makes us a bit uncomfortable.

If you're unsure about the strength of Sensirion Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.
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