A.P. Møller - Mærsk A/S' (CPH:MAERSK B) P/E Is Still On The Mark Following 27% Share Price Bounce

A.P. Møller - Mærsk A/S (CPH:MAERSK B) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 31% in the last year.

Since its price has surged higher, A.P. Møller - Mærsk's price-to-earnings (or "P/E") ratio of 35.3x might make it look like a strong sell right now compared to the market in Denmark, where around half of the companies have P/E ratios below 17x and even P/E's below 9x are quite common. 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.

A.P. Møller - Mærsk certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for A.P. Møller - Mærsk

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

Is There Enough Growth For A.P. Møller - Mærsk?

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

If we review the last year of earnings growth, the company posted a terrific increase of 70%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 61% per year over the next three years. With the market only predicted to deliver 15% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why A.P. Møller - Mærsk is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

A.P. Møller - Mærsk's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of A.P. Møller - Mærsk's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for A.P. Møller - Mærsk that you should be aware of.

Of course, you might also be able to find a better stock than A.P. Møller - Mærsk. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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