The Price Is Right For ASM International NV (AMS:ASM)

When close to half the companies in the Netherlands have price-to-earnings ratios (or "P/E's") below 16x, you may consider ASM International NV (AMS:ASM) as a stock to avoid entirely with its 39.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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ASM International hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for ASM International

Want the full picture on analyst estimates for the company? Then our free report on ASM International will help you uncover what's on the horizon.

Does Growth Match The High P/E?

In order to justify its P/E ratio, ASM International would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 7.5% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 30% per year over the next three years. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

In light of this, it's understandable that ASM International's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From ASM International'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.

As we suspected, our examination of ASM International's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for ASM International that you need to take into consideration.

You might be able to find a better investment than ASM International. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.