Investors Interested In ASM International NV's (AMS:ASM) Earnings

When close to half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") below 17x, you may consider ASM International NV (AMS:ASM) as a stock to avoid entirely with its 32x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, ASM International's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for ASM International

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ASM International.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like ASM International's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.6%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 37% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 16% each year, which is noticeably less attractive.

In light of this, it's understandable that ASM International's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of ASM International's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware ASM International is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on ASM International, 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.