Stock Analysis

Unpleasant Surprises Could Be In Store For IEX Group N.V.'s (AMS:IEX) Shares

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ENXTAM:IEX
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With a median price-to-earnings (or "P/E") ratio of close to 17x in the Netherlands, you could be forgiven for feeling indifferent about IEX Group N.V.'s (AMS:IEX) P/E ratio of 15.2x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's exceedingly strong of late, IEX Group has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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.

Check out our latest analysis for IEX Group

pe-multiple-vs-industry
ENXTAM:IEX Price to Earnings Ratio vs Industry October 3rd 2023
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on IEX Group will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like IEX Group's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 31% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 7.6% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that IEX Group is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that IEX Group currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 4 warning signs for IEX Group (of which 1 is concerning!) you should know about.

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.

Valuation is complex, but we're helping make it simple.

Find out whether IEX Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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