Investors Don't See Light At End Of GIEAG Immobilien AG's (MUN:2GI) Tunnel And Push Stock Down 26%

GIEAG Immobilien AG (MUN:2GI) shares have had a horrible month, losing 26% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Following the heavy fall in price, given close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 16x, you may consider GIEAG Immobilien as a highly attractive investment with its 2.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for GIEAG Immobilien as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for GIEAG Immobilien

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

How Is GIEAG Immobilien's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as GIEAG Immobilien's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 86% gain to the company's bottom line. EPS has also lifted 9.7% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 0.7% each year during the coming three years according to the only analyst following the company. With the market predicted to deliver 14% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that GIEAG Immobilien's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

GIEAG Immobilien's P/E looks about as weak as its stock price lately. 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.

As we suspected, our examination of GIEAG Immobilien's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 4 warning signs for GIEAG Immobilien you should be aware of, and 1 of them is a bit unpleasant.

You might be able to find a better investment than GIEAG Immobilien. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.