Infineon Technologies AG (ETR:IFX) Not Flying Under The Radar

It's not a stretch to say that Infineon Technologies AG's (ETR:IFX) price-to-earnings (or "P/E") ratio of 17.3x right now seems quite "middle-of-the-road" compared to the market in Germany, where the median P/E ratio is around 17x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

While the market has experienced earnings growth lately, Infineon Technologies' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Infineon Technologies

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Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Infineon Technologies' to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.6%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 513% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 13% each year, which is not materially different.

With this information, we can see why Infineon Technologies is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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.

We've established that Infineon Technologies maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Infineon Technologies with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Infineon Technologies, 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.

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