Not Many Are Piling Into ABO Energy GmbH & Co. KGaA (ETR:AB9) Stock Yet As It Plummets 57%

The ABO Energy GmbH & Co. KGaA (ETR:AB9) share price has fared very poorly over the last month, falling by a substantial 57%. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

After such a large drop in price, ABO Energy GmbH KGaA's price-to-earnings (or "P/E") ratio of 5.8x might make it look like a strong buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 18x and even P/E's above 34x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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ABO Energy GmbH KGaA hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for ABO Energy GmbH KGaA

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How Is ABO Energy GmbH KGaA's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as ABO Energy GmbH KGaA's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 20%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 40% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 27% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 18% each year, which is noticeably less attractive.

With this information, we find it odd that ABO Energy GmbH KGaA is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On ABO Energy GmbH KGaA's P/E

Shares in ABO Energy GmbH KGaA have plummeted and its P/E is now low enough to touch the ground. 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.

Our examination of ABO Energy GmbH KGaA's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with ABO Energy GmbH KGaA (including 2 which can't be ignored).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.