H. Lundbeck A/S' (CPH:HLUN B) Price In Tune With Earnings

There wouldn't be many who think H. Lundbeck A/S' (CPH:HLUN B) price-to-earnings (or "P/E") ratio of 15.8x is worth a mention when the median P/E in Denmark is similar at about 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

There hasn't been much to differentiate H. Lundbeck's and the market's earnings growth lately. The P/E is probably moderate because investors think this modest earnings performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

View our latest analysis for H. Lundbeck

Keen to find out how analysts think H. Lundbeck's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

H. Lundbeck's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 9.0% last year. The latest three year period has also seen an excellent 44% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 12% each year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the market is forecast to expand by 13% per annum, which is not materially different.

In light of this, it's understandable that H. Lundbeck's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On H. Lundbeck's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of H. Lundbeck's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for H. Lundbeck with six simple checks on some of these key factors.

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.