- Real Estate
There's No Escaping GIEAG Immobilien AG's (ETR:2GI) Muted Earnings
GIEAG Immobilien AG's (ETR:2GI) price-to-earnings (or "P/E") ratio of 2.1x might make it look like a strong buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 16x and even P/E's above 32x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Recent times have been quite advantageous for GIEAG Immobilien as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for GIEAG ImmobilienWe don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on GIEAG Immobilien's earnings, revenue and cash flow.
Does Growth Match The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like GIEAG Immobilien's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 62% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 32% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Comparing that to the market, which is predicted to deliver 7.3% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.
In light of this, it's understandable that GIEAG Immobilien's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.
The Final Word
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that GIEAG Immobilien maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
There are also other vital risk factors to consider before investing and we've discovered 4 warning signs for GIEAG Immobilien that you should be aware of.
If these risks are making you reconsider your opinion on GIEAG Immobilien, explore our interactive list of high quality stocks to get an idea of what else is out there.
Valuation is complex, but we're helping make it simple.
Find out whether GIEAG Immobilien is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
GIEAG Immobilien AG develops commercial and residential properties in southern Germany.
Solid track record and good value.