Flughafen Zürich AG's (VTX:FHZN) Price Is Out Of Tune With Earnings

With a median price-to-earnings (or "P/E") ratio of close to 20x in Switzerland, you could be forgiven for feeling indifferent about Flughafen Zürich AG's (VTX:FHZN) P/E ratio of 21.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Recent earnings growth for Flughafen Zürich has been in line with the market. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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Does Growth Match The P/E?

Flughafen Zürich's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 7.4% last year. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 1.9% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 9.5% per year, which is noticeably more attractive.

With this information, we find it interesting that Flughafen Zürich is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Flughafen Zürich currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Flughafen Zürich has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Flughafen Zürich. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.