There Is A Reason A.P. Møller - Mærsk A/S' (CPH:MAERSK B) Price Is Undemanding

With a price-to-earnings (or "P/E") ratio of 6.4x A.P. Møller - Mærsk A/S (CPH:MAERSK B) may be sending very bullish signals at the moment, given that almost half of all companies in Denmark have P/E ratios greater than 14x and even P/E's higher than 26x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

A.P. Møller - Mærsk hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Want the full picture on analyst estimates for the company? Then our free report on A.P. Møller - Mærsk will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, A.P. Møller - Mærsk would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 58% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 67% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 52% per annum during the coming three years according to the analysts following the company. That's not great when the rest of the market is expected to grow by 16% per annum.

With this information, we are not surprised that A.P. Møller - Mærsk is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From A.P. Møller - Mærsk'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.

We've established that A.P. Møller - Mærsk maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with A.P. Møller - Mærsk (including 1 which is potentially serious).

If these risks are making you reconsider your opinion on A.P. Møller - Mærsk, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.