Many Still Looking Away From DWS Group GmbH & Co. KGaA (ETR:DWS)

With a price-to-earnings (or "P/E") ratio of 13.4x DWS Group GmbH & Co. KGaA (ETR:DWS) may be sending bullish signals at the moment, given that almost half of all companies in Germany have P/E ratios greater than 16x and even P/E's higher than 34x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

DWS Group GmbH KGaA has been doing a reasonable job lately as its earnings haven't declined as much as most other companies. One possibility is that the P/E is low because investors think this relatively better earnings performance might be about to deteriorate significantly. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. But at the very least, you'd be hoping that earnings don't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

View our latest analysis for DWS Group GmbH KGaA

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What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered a frustrating 4.7% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the analysts watching the company. With the market predicted to deliver 14% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that DWS Group GmbH KGaA's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

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.

Our examination of DWS Group GmbH KGaA's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for DWS Group GmbH KGaA you should be aware of.

If you're unsure about the strength of DWS Group GmbH KGaA's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.