There's Reason For Concern Over 7C Solarparken AG's (ETR:HRPK) Price

With a price-to-earnings (or "P/E") ratio of 25.8x 7C Solarparken AG (ETR:HRPK) may be sending bearish signals at the moment, given that almost half of all companies in Germany have P/E ratios under 21x and even P/E's lower than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, 7C Solarparken has been doing quite well of late. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for 7C Solarparken

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 7C Solarparken.

Does Growth Match The High P/E?

7C Solarparken's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. EPS has also lifted 25% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 6.8% per year as estimated by the twin analysts watching the company. With the market predicted to deliver 12% growth each year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that 7C Solarparken is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From 7C Solarparken's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of 7C Solarparken's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You need to take note of risks, for example - 7C Solarparken has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

Of course, you might also be able to find a better stock than 7C Solarparken. 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.

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