Why Investors Shouldn't Be Surprised By NN Group N.V.'s (AMS:NN) Low P/E

By
Simply Wall St
Published
September 28, 2020
ENXTAM:NN

When close to half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") above 22x, you may consider NN Group N.V. (AMS:NN) as a highly attractive investment with its 7.3x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, NN Group 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.

View our latest analysis for NN Group

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ENXTAM:NN Price Based on Past Earnings September 28th 2020
Want the full picture on analyst estimates for the company? Then our free report on NN Group will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, NN Group would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 9.0% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 14% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to climb by 7.4% per annum during the coming three years according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% per annum, which is noticeably more attractive.

In light of this, it's understandable that NN Group'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 NN Group's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that NN Group 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for NN Group you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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This article by Simply Wall St is general in nature. 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.
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