MT Højgaard Holding A/S (CPH:MTHH) Stock Rockets 27% But Many Are Still Ignoring The Company

The MT Højgaard Holding A/S (CPH:MTHH) share price has done very well over the last month, posting an excellent gain of 27%. Looking back a bit further, it's encouraging to see the stock is up 97% in the last year.

Even after such a large jump in price, MT Højgaard Holding's price-to-earnings (or "P/E") ratio of 7.7x might still make it look like a buy right now compared to the market in Denmark, where around half of the companies have P/E ratios above 16x and even P/E's above 30x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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The recent earnings growth at MT Højgaard Holding would have to be considered satisfactory if not spectacular. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for MT Højgaard Holding

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 MT Højgaard Holding's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like MT Højgaard Holding's to be considered reasonable.

Retrospectively, the last year delivered a decent 3.7% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 165% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that MT Højgaard Holding's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Despite MT Højgaard Holding's shares building up a head of steam, its P/E still lags most other companies. 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 currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for MT Højgaard Holding (1 is potentially serious!) that we have uncovered.

Of course, you might also be able to find a better stock than MT Højgaard Holding. 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.