Why Investors Shouldn't Be Surprised By INDUS Holding AG's (ETR:INH) Low P/E

INDUS Holding AG's (ETR:INH) price-to-earnings (or "P/E") ratio of 9.6x might 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 20x and even P/E's above 38x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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INDUS Holding could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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 INDUS Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on INDUS Holding.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, INDUS Holding would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 8.9% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 42% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 12% each year over the next three years. With the market predicted to deliver 17% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that INDUS Holding's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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 INDUS Holding maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for INDUS Holding (1 makes us a bit uncomfortable!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.