Fielmann Group AG's (ETR:FIE) Popularity With Investors Is Clear

With a price-to-earnings (or "P/E") ratio of 24.4x Fielmann Group AG (ETR:FIE) may be sending very bearish signals at the moment, given that almost half of all companies in Germany have P/E ratios under 16x and even P/E's lower than 10x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Fielmann Group has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Fielmann Group

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Does Growth Match The High P/E?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 13% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 10% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 29% as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 21% growth forecast for the broader market.

With this information, we can see why Fielmann Group is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

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 Fielmann Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Fielmann Group you should be aware of.

If these risks are making you reconsider your opinion on Fielmann 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.