GFT Technologies SE (ETR:GFT) Soars 32% But It's A Story Of Risk Vs Reward

GFT Technologies SE (ETR:GFT) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 7.0% in the last twelve months.

Even after such a large jump in price, GFT Technologies' price-to-earnings (or "P/E") ratio of 14.2x might still make it look like a buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 19x and even P/E's above 36x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

GFT Technologies hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

View our latest analysis for GFT Technologies

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

Is There Any Growth For GFT Technologies?

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

Retrospectively, the last year delivered a frustrating 3.9% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 56% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 14% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 16% per year, which is not materially different.

In light of this, it's peculiar that GFT Technologies' P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From GFT Technologies' P/E?

Despite GFT Technologies' shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of GFT Technologies' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Having said that, be aware GFT Technologies is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of GFT Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.