After Leaping 27% Friedrich Vorwerk Group SE (ETR:VH2) Shares Are Not Flying Under The Radar

Friedrich Vorwerk Group SE (ETR:VH2) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 146% in the last year.

Following the firm bounce in price, Friedrich Vorwerk Group's price-to-earnings (or "P/E") ratio of 37.1x might make it look like a strong sell right now compared to the market in Germany, where around half of the companies have P/E ratios below 16x and even P/E's below 10x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Friedrich Vorwerk Group 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Friedrich Vorwerk Group

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

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Friedrich Vorwerk Group's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 49% last year. Still, incredibly EPS has fallen 51% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 32% per year over the next three years. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

In light of this, it's understandable that Friedrich Vorwerk Group'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 Bottom Line On Friedrich Vorwerk Group's P/E

Shares in Friedrich Vorwerk Group have built up some good momentum lately, which has really inflated its P/E. 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.

As we suspected, our examination of Friedrich Vorwerk Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Friedrich Vorwerk Group with six simple checks.

Of course, you might also be able to find a better stock than Friedrich Vorwerk Group. 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.