Why We're Not Concerned Yet About M1 Kliniken AG's (ETR:M12) 27% Share Price Plunge

M1 Kliniken AG (ETR:M12) shares have had a horrible month, losing 27% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 67%, which is great even in a bull market.

In spite of the heavy fall in price, given around half the companies in Germany have price-to-earnings ratios (or "P/E's") below 16x, you may still consider M1 Kliniken as a stock to potentially avoid with its 23.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

M1 Kliniken certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for M1 Kliniken

Keen to find out how analysts think M1 Kliniken's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

M1 Kliniken's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 128% gain to the company's bottom line. The latest three year period has also seen an excellent 53% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 28% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 14% each year, which is noticeably less attractive.

With this information, we can see why M1 Kliniken is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On M1 Kliniken's P/E

There's still some solid strength behind M1 Kliniken's P/E, if not its share price lately. 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.

As we suspected, our examination of M1 Kliniken's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for M1 Kliniken (1 doesn't sit too well with us!) that you should be aware of.

Of course, you might also be able to find a better stock than M1 Kliniken. 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