Earnings Tell The Story For Daldrup & Söhne Aktiengesellschaft (ETR:4DS) As Its Stock Soars 25%

Daldrup & Söhne Aktiengesellschaft (ETR:4DS) shares have continued their recent momentum with a 25% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 81% in the last year.

After such a large jump in price, Daldrup & Söhne may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 33.5x, since almost half of all companies in Germany have P/E ratios under 19x and even P/E's lower than 12x 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 so lofty.

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With earnings growth that's superior to most other companies of late, Daldrup & Söhne has been doing relatively well. 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.

Check out our latest analysis for Daldrup & Söhne

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

How Is Daldrup & Söhne's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 179% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 217% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 33% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 17% each year growth forecast for the broader market.

In light of this, it's understandable that Daldrup & Söhne's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Daldrup & Söhne's P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Daldrup & Söhne 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.

Having said that, be aware Daldrup & Söhne is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Daldrup & Söhne. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.