TeamViewer AG (ETR:TMV) Stocks Pounded By 39% But Not Lagging Market On Growth Or Pricing

TeamViewer AG (ETR:TMV) shareholders that were waiting for something to happen have been dealt a blow with a 39% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

In spite of the heavy fall in price, given close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 22x, you may still consider TeamViewer as a stock to avoid entirely with its 57.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

TeamViewer could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for TeamViewer

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Does Growth Match The High P/E?

In order to justify its P/E ratio, TeamViewer would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 50%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 39% per year as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

In light of this, it's understandable that TeamViewer's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Even after such a strong price drop, TeamViewer's P/E still exceeds the rest of the market significantly. 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.

We've established that TeamViewer maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - TeamViewer has 3 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than TeamViewer. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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.

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