Pinning Down Daldrup & Söhne Aktiengesellschaft's (ETR:4DS) P/E Is Difficult Right Now

Daldrup & Söhne Aktiengesellschaft's (ETR:4DS) price-to-earnings (or "P/E") ratio of 25.3x might make it look like a sell right now compared to the market in Germany, where around half of the companies have P/E ratios below 17x and even P/E's below 10x are quite common. 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.

Daldrup & Söhne certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Daldrup & Söhne

Keen to find out how analysts think Daldrup & Söhne's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Daldrup & Söhne's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 88%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 17% per year during the coming three years according to the three analysts following the company. That's shaping up to be similar to the 15% per annum growth forecast for the broader market.

With this information, we find it interesting that Daldrup & Söhne is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Key Takeaway

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 Daldrup & Söhne's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Daldrup & Söhne, and understanding them should be part of your investment process.

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.