It's A Story Of Risk Vs Reward With JOST Werke SE (ETR:JST)

There wouldn't be many who think JOST Werke SE's (ETR:JST) price-to-earnings (or "P/E") ratio of 17.6x is worth a mention when the median P/E in Germany is similar at about 19x. 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.

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While the market has experienced earnings growth lately, JOST Werke's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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Is There Some Growth For JOST Werke?

There's an inherent assumption that a company should be matching the market for P/E ratios like JOST Werke's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 5.6% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 1.8% in total over the last three years. 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 26% per annum over the next three years. With the market only predicted to deliver 17% per year, the company is positioned for a stronger earnings result.

In light of this, it's curious that JOST Werke's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On JOST Werke's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that JOST Werke currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 3 warning signs for JOST Werke that you should be aware of.

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.