Stock Analysis

Lacklustre Performance Is Driving Bilfinger SE's (ETR:GBF) Low P/E

XTRA:GBF
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With a price-to-earnings (or "P/E") ratio of 12.3x Bilfinger SE (ETR:GBF) may be sending bullish signals at the moment, given that almost half of all companies in Germany have P/E ratios greater than 19x and even P/E's higher than 35x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times haven't been advantageous for Bilfinger as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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XTRA:GBF Price Based on Past Earnings April 13th 2022
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Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 2.1% each year during the coming three years according to the three analysts following the company. Meanwhile, the broader market is forecast to expand by 14% per annum, which paints a poor picture.

With this information, we are not surprised that Bilfinger is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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 Bilfinger's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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 settle on your opinion, we've discovered 3 warning signs for Bilfinger (1 doesn't sit too well with us!) that you should be aware of.

Of course, you might also be able to find a better stock than Bilfinger. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

Valuation is complex, but we're helping make it simple.

Find out whether Bilfinger is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.