Yahoo Finance Potential Upside For Nordwest Handel AG (FRA:NWX) Not Without Risk
Nordwest Handel AG's (FRA:NWX) price-to-earnings (or "P/E") ratio of 4.9x might make it look like a strong buy right now compared to the market in Germany, where around half of the companies have P/E ratios above 17x and even P/E's above 35x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Nordwest Handel has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
See our latest analysis for Nordwest Handel
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Nordwest Handel's earnings, revenue and cash flow.
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Nordwest Handel would need to produce anemic growth that's substantially trailing the market.
Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. Pleasingly, EPS has also lifted 107% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Comparing that to the market, which is only predicted to deliver 9.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
In light of this, it's peculiar that Nordwest Handel's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Final Word
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 Nordwest Handel currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Nordwest Handel that you should be aware of.
If these risks are making you reconsider your opinion on Nordwest Handel, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
