Subdued Growth No Barrier To Sixt SE (ETR:SIX2) With Shares Advancing 29%

The Sixt SE (ETR:SIX2) share price has done very well over the last month, posting an excellent gain of 29%. Looking back a bit further, it's encouraging to see the stock is up 48% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Sixt's P/E ratio of 18x, since the median price-to-earnings (or "P/E") ratio in Germany is also close to 19x. 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.

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For example, consider that Sixt's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Sixt

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sixt's earnings, revenue and cash flow.

How Is Sixt's Growth Trending?

Sixt's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 35% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 22% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Sixt is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Bottom Line On Sixt's P/E

Sixt's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Sixt revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Sixt you should be aware of.

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

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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.