With a price-to-earnings (or "P/E") ratio of 43.8x Antares Vision S.p.A. (BIT:AV) may be sending very bearish signals at the moment, given that almost half of all companies in Italy have P/E ratios under 17x and even P/E's lower than 9x are not unusual. 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.
Antares Vision could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.
Check out our latest analysis for Antares Vision
Does Growth Match The High P/E?
The only time you'd be truly comfortable seeing a P/E as steep as Antares Vision's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.6% last year. Still, lamentably EPS has fallen 54% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Looking ahead now, EPS is anticipated to climb by 42% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 18% per year, which is noticeably less attractive.
In light of this, it's understandable that Antares Vision's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Antares Vision's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Antares Vision with six simple checks.
If you're unsure about the strength of Antares Vision's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
About BIT:AV
Antares Vision
Engages in the production, installation, and maintenance of inspection systems for quality control.
Reasonable growth potential with adequate balance sheet.
