When close to half the companies in Germany have price-to-earnings ratios (or “P/E’s”) below 16x, you may consider Binect AG (ETR:MA10) as a stock to avoid entirely with its 48.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it’s justified.
Binect certainly has been doing a good job lately as it’s been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.
View our latest analysis for Binect
If you’d like to see what analysts are forecasting going forward, you should check out our free report on Binect.
How Is Binect’s Growth Trending?
The only time you’d be truly comfortable seeing a P/E as steep as Binect’s is when the company’s growth is on track to outshine the market decidedly.
Taking a look back first, we see that the company grew earnings per share by an impressive 55% last year. 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.
Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 103% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 14% per year, which is noticeably less attractive.
With this information, we can see why Binect is trading at such a high P/E compared to the market. Apparently shareholders aren’t keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Binect’s P/E
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 Binect’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.
Plus, you should also learn about this 1 warning sign we’ve spotted with Binect.
You might be able to find a better investment than Binect. 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).
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.
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