Investors Give Verve Group SE (ETR:M8G) Shares A 25% Hiding

Verve Group SE (ETR:M8G) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 44%, which is great even in a bull market.

Although its price has dipped substantially, it's still not a stretch to say that Verve Group's price-to-earnings (or "P/E") ratio of 17.2x right now seems quite "middle-of-the-road" compared to the market in Germany, where the median P/E ratio is around 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Verve Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Verve Group

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

Is There Some Growth For Verve Group?

There's an inherent assumption that a company should be matching the market for P/E ratios like Verve Group's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 47%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 36% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 49% per year over the next three years. That's shaping up to be materially higher than the 15% per year growth forecast for the broader market.

In light of this, it's curious that Verve Group's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Verve Group's P/E

Following Verve Group's share price tumble, its P/E is now hanging on to the median market P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

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

We don't want to rain on the parade too much, but we did also find 4 warning signs for Verve Group (1 can't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Verve Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.