Earnings Tell The Story For Daldrup & Söhne Aktiengesellschaft (ETR:4DS) As Its Stock Soars 32%

The Daldrup & Söhne Aktiengesellschaft (ETR:4DS) share price has done very well over the last month, posting an excellent gain of 32%. The annual gain comes to 101% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, Daldrup & Söhne may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 39.8x, since almost half of all companies in Germany have P/E ratios under 18x and even P/E's lower than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Daldrup & Söhne hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Daldrup & Söhne

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How Is Daldrup & Söhne's Growth Trending?

Daldrup & Söhne's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.7%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 239% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 41% per annum as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 17% per annum growth forecast for the broader market.

With this information, we can see why Daldrup & Söhne is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Daldrup & Söhne's P/E?

Daldrup & Söhne's P/E is flying high just like its stock has during the last month. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Daldrup & Söhne you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.