A Piece Of The Puzzle Missing From Koninklijke Heijmans N.V.'s (AMS:HEIJM) 28% Share Price Climb

The Koninklijke Heijmans N.V. (AMS:HEIJM) share price has done very well over the last month, posting an excellent gain of 28%. The last month tops off a massive increase of 158% in the last year.

Although its price has surged higher, Koninklijke Heijmans may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 10.8x, since almost half of all companies in the Netherlands have P/E ratios greater than 18x and even P/E's higher than 33x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Koninklijke Heijmans certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Koninklijke Heijmans

Want the full picture on analyst estimates for the company? Then our free report on Koninklijke Heijmans will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

Koninklijke Heijmans' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. The latest three year period has also seen an excellent 90% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 13% per year, which is not materially different.

With this information, we find it odd that Koninklijke Heijmans is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Koninklijke Heijmans' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Koninklijke Heijmans' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you take the next step, you should know about the 3 warning signs for Koninklijke Heijmans that we have uncovered.

If these risks are making you reconsider your opinion on Koninklijke Heijmans, 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.