Südzucker AG (ETR:SZU) Doing What It Can To Lift Shares

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 16x, you may consider Südzucker AG (ETR:SZU) as an attractive investment with its 12x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Südzucker certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Südzucker

Want the full picture on analyst estimates for the company? Then our free report on Südzucker will help you uncover what's on the horizon.

Is There Any Growth For Südzucker?

The only time you'd be truly comfortable seeing a P/E as low as Südzucker's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 248% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 48% over the next year. That's shaping up to be materially higher than the 6.9% growth forecast for the broader market.

With this information, we find it odd that Südzucker is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

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 Südzucker currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Südzucker has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you're unsure about the strength of Südzucker's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.