Why Investors Shouldn't Be Surprised By Wacker Neuson SE's (ETR:WAC) P/E

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 18x, you may consider Wacker Neuson SE (ETR:WAC) as a stock to avoid entirely with its 30.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Wacker Neuson could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Does Growth Match The High P/E?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 65%. The last three years don't look nice either as the company has shrunk EPS by 63% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 49% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 17% per year growth forecast for the broader market.

In light of this, it's understandable that Wacker Neuson's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Wacker Neuson that you need to be mindful of.

If these risks are making you reconsider your opinion on Wacker Neuson, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.