When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 17x, you may consider Daimler Truck Holding AG (ETR:DTG) as a stock to potentially avoid with its 20.4x 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 lofty.
With earnings growth that's superior to most other companies of late, Daimler Truck Holding has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.
See our latest analysis for Daimler Truck Holding
How Is Daimler Truck Holding's Growth Trending?
In order to justify its P/E ratio, Daimler Truck Holding would need to produce impressive growth in excess of the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 35% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 34% per year during the coming three years according to the analysts following the company. With the market only predicted to deliver 13% per annum, the company is positioned for a stronger earnings result.
In light of this, it's understandable that Daimler Truck Holding's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From Daimler Truck Holding's P/E?
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Daimler Truck Holding's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Daimler Truck Holding you should know about.
You might be able to find a better investment than Daimler Truck Holding. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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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.
About XTRA:DTG
Daimler Truck Holding
Manufactures and sells light, medium- and heavy-duty trucks and buses in Europe, North America, Asia, Latin America, and internationally.
Undervalued with proven track record.
