DLB-Anlageservice AG's (BST:DLB) 27% Price Boost Is Out Of Tune With Earnings

DLB-Anlageservice AG (BST:DLB) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 59%.

Following the firm bounce in price, DLB-Anlageservice's price-to-earnings (or "P/E") ratio of 30x might make it look like a strong sell right now compared to the market in Germany, where around half of the companies have P/E ratios below 18x and even P/E's below 11x are quite common. 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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DLB-Anlageservice certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for DLB-Anlageservice

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on DLB-Anlageservice's earnings, revenue and cash flow.

How Is DLB-Anlageservice's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as DLB-Anlageservice's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 55% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 71% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.

In light of this, it's alarming that DLB-Anlageservice's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Shares in DLB-Anlageservice have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of DLB-Anlageservice revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with DLB-Anlageservice (at least 2 which shouldn't be ignored), and understanding these should be part of your investment process.

You might be able to find a better investment than DLB-Anlageservice. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.