Yahoo Finance Shareholders Should Be Pleased With Nagarro SE's (FRA:NA9) Price
With a price-to-earnings (or "P/E") ratio of 20.5x Nagarro SE (FRA:NA9) may be sending bearish signals at the moment, given that almost half of all companies in Germany have P/E ratios under 15x and even P/E's lower than 8x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.
With earnings that are retreating more than the market's of late, Nagarro has been very sluggish. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.
Check out our latest analysis for Nagarro
Want the full picture on analyst estimates for the company? Then our free report on Nagarro will help you uncover what's on the horizon.
How Is Nagarro's Growth Trending?
There's an inherent assumption that a company should outperform the market for P/E ratios like Nagarro's to be considered reasonable.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. As a result, earnings from three years ago have also fallen 99% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 15% over the next year. That's shaping up to be materially higher than the 9.5% growth forecast for the broader market.
With this information, we can see why Nagarro 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 Nagarro'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.
We've established that Nagarro maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
You always need to take note of risks, for example - Nagarro has 2 warning signs we think you should be aware of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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.
