Heineken Holding N.V.'s (AMS:HEIO) Shares Not Telling The Full Story

It's not a stretch to say that Heineken Holding N.V.'s (AMS:HEIO) price-to-earnings (or "P/E") ratio of 18.6x right now seems quite "middle-of-the-road" compared to the market in the Netherlands, where the median P/E ratio is around 17x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Heineken Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

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How Is Heineken Holding's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 73%. However, this wasn't enough as the latest three year period has seen a very unpleasant 46% drop in EPS in aggregate. 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 23% per annum during the coming three years according to the two analysts following the company. With the market only predicted to deliver 15% each year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Heineken Holding is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

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 Heineken Holding currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Heineken Holding that you should be aware of.

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

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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.