Some Confidence Is Lacking In Dantax A/S (CPH:DANT) As Shares Slide 33%

Dantax A/S (CPH:DANT) shares have retraced a considerable 33% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 23%.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Dantax's P/E ratio of 13.4x, since the median price-to-earnings (or "P/E") ratio in Denmark is also close to 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For example, consider that Dantax's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Dantax

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dantax will help you shine a light on its historical performance.

How Is Dantax's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Dantax's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. This means it has also seen a slide in earnings over the longer-term as EPS is down 54% 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.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's somewhat alarming that Dantax's P/E sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Dantax's P/E

Following Dantax's share price tumble, its P/E is now hanging on to the median market P/E. 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 Dantax currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. 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.

And what about other risks? Every company has them, and we've spotted 6 warning signs for Dantax (of which 3 are potentially serious!) you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.