There's No Escaping Knaus Tabbert AG's (ETR:KTA) Muted Earnings Despite A 30% Share Price Rise

Those holding Knaus Tabbert AG (ETR:KTA) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 63% share price decline over the last year.

In spite of the firm bounce in price, Knaus Tabbert's price-to-earnings (or "P/E") ratio of 9x might still make it look like a buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 17x and even P/E's above 29x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

For example, consider that Knaus Tabbert's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Knaus Tabbert

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Is There Any Growth For Knaus Tabbert?

There's an inherent assumption that a company should underperform the market for P/E ratios like Knaus Tabbert's to be considered reasonable.

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 10%. As a result, earnings from three years ago have also fallen 40% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 20% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Knaus Tabbert's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift Knaus Tabbert's P/E close to the market median. 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 Knaus Tabbert maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Knaus Tabbert (of which 2 are concerning!) you should know about.

If these risks are making you reconsider your opinion on Knaus Tabbert, 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.