What Eckert & Ziegler Strahlen- und Medizintechnik AG's (ETR:EUZ) P/E Is Not Telling You

With a price-to-earnings (or "P/E") ratio of 29.5x Eckert & Ziegler Strahlen- und Medizintechnik AG (ETR:EUZ) may be sending very bearish signals at the moment, given that almost half of all companies in Germany have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Eckert & Ziegler Strahlen- und Medizintechnik certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

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What Are Growth Metrics Telling Us About The High P/E?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.2% last year. This was backed up an excellent period prior to see EPS up by 32% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the lone analyst watching the company. That's shaping up to be similar to the 13% per annum growth forecast for the broader market.

In light of this, it's curious that Eckert & Ziegler Strahlen- und Medizintechnik's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Eckert & Ziegler Strahlen- und Medizintechnik'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 Eckert & Ziegler Strahlen- und Medizintechnik currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Eckert & Ziegler Strahlen- und Medizintechnik with six simple checks on some of these key factors.

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.

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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.