What You Can Learn From flatexDEGIRO AG's (ETR:FTK) P/E

With a price-to-earnings (or "P/E") ratio of 22.7x flatexDEGIRO AG (ETR:FTK) may be sending bearish signals at the moment, given that almost half of all companies in Germany have P/E ratios under 18x and even P/E's lower than 11x 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 as high as it is.

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Recent times have been advantageous for flatexDEGIRO as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for flatexDEGIRO

If you'd like to see what analysts are forecasting going forward, you should check out our free report on flatexDEGIRO.

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered an exceptional 56% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 121% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 19% per year over the next three years. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

With this information, we can see why flatexDEGIRO is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that flatexDEGIRO maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for flatexDEGIRO with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.