Investors Aren't Buying Wacker Neuson SE's (ETR:WAC) Earnings

With a price-to-earnings (or "P/E") ratio of 6.2x Wacker Neuson SE (ETR:WAC) may be sending very bullish signals at the moment, given that almost half of all companies in Germany have P/E ratios greater than 18x and even P/E's higher than 34x are not unusual. 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Wacker Neuson has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Wacker Neuson

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Is There Any Growth For Wacker Neuson?

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

Retrospectively, the last year delivered an exceptional 30% gain to the company's bottom line. The latest three year period has also seen an excellent 1,260% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 29% as estimated by the four analysts watching the company. That's not great when the rest of the market is expected to grow by 17%.

With this information, we are not surprised that Wacker Neuson is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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.

We've established that Wacker Neuson maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Wacker Neuson you should be aware of, and 1 of them makes us a bit uncomfortable.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.