The Market Doesn't Like What It Sees From HORNBACH Holding AG & Co. KGaA's (ETR:HBH) Earnings Yet

Explore HORNBACH Holding KGaA's Fair Values from the Community and select yours

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 20x, you may consider HORNBACH Holding AG & Co. KGaA (ETR:HBH) as an attractive investment with its 11.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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HORNBACH Holding KGaA hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for HORNBACH Holding KGaA

Want the full picture on analyst estimates for the company? Then our free report on HORNBACH Holding KGaA will help you uncover what's on the horizon.

How Is HORNBACH Holding KGaA's Growth Trending?

In order to justify its P/E ratio, HORNBACH Holding KGaA would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 1.8% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 26% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 4.0% per year during the coming three years according to the six analysts following the company. With the market predicted to deliver 17% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why HORNBACH Holding KGaA is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of HORNBACH Holding KGaA'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. It's hard to see the share price rising strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for HORNBACH Holding KGaA with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.