Friedrich Vorwerk Group SE's (ETR:VH2) Shares Climb 34% But Its Business Is Yet to Catch Up

The Friedrich Vorwerk Group SE (ETR:VH2) share price has done very well over the last month, posting an excellent gain of 34%. This latest share price bounce rounds out a remarkable 307% gain over the last twelve months.

Since its price has surged higher, Friedrich Vorwerk Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 36.1x, 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. 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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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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Friedrich Vorwerk Group

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

Is There Enough Growth For Friedrich Vorwerk Group?

In order to justify its P/E ratio, Friedrich Vorwerk Group would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 290% gain to the company's bottom line. Pleasingly, EPS has also lifted 55% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 12% per year as estimated by the five analysts watching the company. With the market predicted to deliver 17% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Friedrich Vorwerk Group's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Friedrich Vorwerk Group's P/E?

The strong share price surge has got Friedrich Vorwerk Group's P/E rushing to great heights as well. 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 Friedrich Vorwerk Group currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Friedrich Vorwerk Group with six simple checks.

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.