Getting In Cheap On ChemoMetec A/S (CPH:CHEMM) Is Unlikely

When close to half the companies in Denmark have price-to-earnings ratios (or "P/E's") below 13x, you may consider ChemoMetec A/S (CPH:CHEMM) as a stock to avoid entirely with its 43.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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Recent times have been advantageous for ChemoMetec as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for ChemoMetec

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

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 18%. EPS has also lifted 29% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 16% each year over the next three years. That's shaping up to be similar to the 16% per annum growth forecast for the broader market.

In light of this, it's curious that ChemoMetec's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On ChemoMetec'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 ChemoMetec's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for ChemoMetec with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than ChemoMetec. 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.