Koninklijke Heijmans N.V. (AMS:HEIJM) Shares Fly 34% But Investors Aren't Buying For Growth

The Koninklijke Heijmans N.V. (AMS:HEIJM) share price has done very well over the last month, posting an excellent gain of 34%. The last month tops off a massive increase of 163% in the last year.

Although its price has surged higher, Koninklijke Heijmans' price-to-earnings (or "P/E") ratio of 11.6x might still make it look like a buy right now compared to the market in the Netherlands, where around half of the companies have P/E ratios above 19x and even P/E's above 35x 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 limited.

Recent times have been quite advantageous for Koninklijke Heijmans as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 Koninklijke Heijmans

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Koninklijke Heijmans will help you shine a light on its historical performance.

Is There Any Growth For Koninklijke Heijmans?

In order to justify its P/E ratio, Koninklijke Heijmans would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 46% last year. The strong recent performance means it was also able to grow EPS by 50% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 23% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Koninklijke Heijmans is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Koninklijke Heijmans' P/E

The latest share price surge wasn't enough to lift Koninklijke Heijmans' P/E close to the market median. 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.

We've established that Koninklijke Heijmans maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Koninklijke Heijmans that you need to be mindful of.

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.