Lacklustre Performance Is Driving Mercedes-Benz Group AG's (ETR:MBG) Low P/E

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 20x, you may consider Mercedes-Benz Group AG (ETR:MBG) as a highly attractive investment with its 5.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Our free stock report includes 2 warning signs investors should be aware of before investing in Mercedes-Benz Group. Read for free now.

Mercedes-Benz Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

See our latest analysis for Mercedes-Benz Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mercedes-Benz Group.

How Is Mercedes-Benz Group's Growth Trending?

Mercedes-Benz Group's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse 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 28%. This means it has also seen a slide in earnings over the longer-term as EPS is down 7.9% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 3.3% each year as estimated by the analysts watching the company. With the market predicted to deliver 17% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Mercedes-Benz Group is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

As we suspected, our examination of Mercedes-Benz Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Mercedes-Benz Group (1 is a bit concerning!) that you should be aware of.

Of course, you might also be able to find a better stock than Mercedes-Benz Group. 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.