Fraport AG's (ETR:FRA) Earnings Are Not Doing Enough For Some Investors

With a price-to-earnings (or "P/E") ratio of 10.1x Fraport AG (ETR:FRA) may be sending bullish signals at the moment, given that almost half of all companies in Germany have P/E ratios greater than 17x and even P/E's higher than 31x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Fraport as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you 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 Fraport

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

Is There Any Growth For Fraport?

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

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 2.9% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader market.

With this information, we can see why Fraport 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 Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Fraport'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Fraport has 1 warning sign we think you should be aware of.

Of course, you might also be able to find a better stock than Fraport. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.