Verve Group SE's (ETR:M8G) 31% Jump Shows Its Popularity With Investors

Verve Group SE (ETR:M8G) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 26%.

Following the firm bounce in price, Verve Group may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 23x, since almost half of all companies in Germany have P/E ratios under 18x and even P/E's lower than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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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. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out 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 Enough Growth For Verve Group?

The only time you'd be truly comfortable seeing a P/E as high as Verve Group's is when the company's growth is on track to outshine the market.

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 46%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 28% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 38% each year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 17% each year growth forecast for the broader market.

In light of this, it's understandable that Verve Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Verve Group's P/E?

Verve Group's P/E is getting right up there since its shares have risen strongly. 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 Verve Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Verve Group (1 doesn't sit too well with us!) that you should be aware of.

If you're unsure about the strength of Verve Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.