Südwestdeutsche Salzwerke AG's (FRA:SSH) P/E Still Appears To Be Reasonable

Südwestdeutsche Salzwerke AG's (FRA:SSH) price-to-earnings (or "P/E") ratio of 22.7x 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. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Südwestdeutsche Salzwerke as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Südwestdeutsche Salzwerke

Although there are no analyst estimates available for Südwestdeutsche Salzwerke, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Südwestdeutsche Salzwerke's Growth Trending?

Südwestdeutsche Salzwerke's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 188%. The latest three year period has also seen an excellent 416% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Südwestdeutsche Salzwerke is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Südwestdeutsche Salzwerke's P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Südwestdeutsche Salzwerke maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Südwestdeutsche Salzwerke that you should be aware of.

Of course, you might also be able to find a better stock than Südwestdeutsche Salzwerke. 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.

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