The Market Lifts AlzChem Group AG (ETR:ACT) Shares 26% But It Can Do More

AlzChem Group AG (ETR:ACT) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.

In spite of the firm bounce in price, AlzChem Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.8x, since almost half of all companies in Germany have P/E ratios greater than 16x and even P/E's higher than 34x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for AlzChem Group as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for AlzChem Group

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

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

AlzChem Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 15% last year. This was backed up an excellent period prior to see EPS up by 76% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 15% each year over the next three years. With the market predicted to deliver 14% growth per annum, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that AlzChem Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

AlzChem Group's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that AlzChem Group currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Having said that, be aware AlzChem Group is showing 1 warning sign in our investment analysis, you should know about.

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.