Fugro N.V. (AMS:FUR) Held Back By Insufficient Growth Even After Shares Climb 28%

The Fugro N.V. (AMS:FUR) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 82%.

In spite of the firm bounce in price, given about half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Fugro as an attractive investment with its 9.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Fugro has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Fugro

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

Is There Any Growth For Fugro?

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

If we review the last year of earnings growth, the company posted a terrific increase of 221%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 1.0% per annum as estimated by the six analysts watching the company. With the market predicted to deliver 16% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Fugro's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Fugro's P/E

The latest share price surge wasn't enough to lift Fugro's P/E close to the market median. 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 Fugro maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Fugro with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.