Market Might Still Lack Some Conviction On Schwager S.A. (SNSE:SCHWAGER) Even After 27% Share Price Boost

Schwager S.A. (SNSE:SCHWAGER) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 96% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Schwager's price-to-earnings (or "P/E") ratio of 10.5x is worth a mention when the median P/E in Chile is similar at about 10x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been quite advantageous for Schwager as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Schwager

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Does Growth Match The P/E?

In order to justify its P/E ratio, Schwager would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 44%. The strong recent performance means it was also able to grow EPS by 757% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 5.6% shows it's noticeably more attractive on an annualised basis.

In light of this, it's curious that Schwager's P/E sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Schwager's P/E

Schwager appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Schwager currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Schwager that you should be aware of.

If these risks are making you reconsider your opinion on Schwager, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.