Benign Growth For MT Højgaard Holding A/S (CPH:MTHH) Underpins Its Share Price

When close to half the companies in Denmark have price-to-earnings ratios (or "P/E's") above 17x, you may consider MT Højgaard Holding A/S (CPH:MTHH) as a highly attractive investment with its 4.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, MT Højgaard Holding has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

See our latest analysis for MT Højgaard Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MT Højgaard Holding.

Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 33%. The latest three year period has also seen an excellent 1,123% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings growth is heading into negative territory, declining 7.1% per year over the next three years. That's not great when the rest of the market is expected to grow by 15% per year.

With this information, we are not surprised that MT Højgaard Holding is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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.

We've established that MT Højgaard Holding maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 1 warning sign for MT Højgaard Holding that you should be aware of.

You might be able to find a better investment than MT Højgaard Holding. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.