What Eckert & Ziegler SE's (ETR:EUZ) P/E Is Not Telling You

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 18x, you may consider Eckert & Ziegler SE (ETR:EUZ) as a stock to potentially avoid with its 26.2x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Recent times have been advantageous for Eckert & Ziegler as its earnings have been rising faster 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.

See our latest analysis for Eckert & Ziegler

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Eckert & Ziegler.

Is There Enough Growth For Eckert & Ziegler?

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

If we review the last year of earnings growth, the company posted a worthy increase of 9.9%. Pleasingly, EPS has also lifted 54% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 9.7% each year over the next three years. That's shaping up to be materially lower than the 16% each year growth forecast for the broader market.

In light of this, it's alarming that Eckert & Ziegler'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. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

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 Eckert & Ziegler's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Eckert & Ziegler with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.