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When close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 23x, you may consider Phoenix Spree Deutschland Limited (LON:PSDL) as an attractive investment with its 14.3x 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 limited.
Recent times haven't been advantageous for Phoenix Spree Deutschland as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Phoenix Spree Deutschland.
Does Growth Match The Low P/E?
There's an inherent assumption that a company should underperform the market for P/E ratios like Phoenix Spree Deutschland's to be considered reasonable.
Retrospectively, the last year delivered a frustrating 41% 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 71% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next year should generate growth of 9.6% as estimated by the sole analyst watching the company. With the market predicted to deliver 18% growth , the company is positioned for a weaker earnings result.
With this information, we can see why Phoenix Spree Deutschland is trading at a P/E lower than the market. 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 Phoenix Spree Deutschland'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 Phoenix Spree Deutschland's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
And what about other risks? Every company has them, and we've spotted 4 warning signs for Phoenix Spree Deutschland (of which 1 is a bit unpleasant!) you should know about.
You might be able to find a better investment than Phoenix Spree Deutschland. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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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