At a time when almost half of the companies in Germany have a price-earnings ratio (P/E) of over 17, the freenet AG(ETR:FNTN) could be an attractive investment with a P/E ratio of 11.8. However, it is not advisable to take the P/E ratio at face value as there may be an explanation as to why it is capped.
freenet has certainly done a good job recently, as the company has been able to grow its profits more than most other companies. It could be that many expect the strong earnings performance to deteriorate significantly, which has depressed the P/E ratio. If you like the company, you should hope this isn’t the case so you can potentially buy shares while it’s out of favor.
Check out our latest analysis of freenet
XTRA:FNTN Price-to-Earnings Ratio Compared to Industry October 6, 2024 Want a complete picture of analyst estimates for the company? Then ours will help you free Report on freenet to find out what’s on the horizon.
What do the growth metrics tell us about the low P/E ratio?
A P/E ratio as low as freenet’s is only really pleasant if the company’s growth lags behind the market.
A look back shows that the company increased its earnings per share by an impressive 309% last year. The strong recent performance means the company has grown earnings per share by a total of 53% over the last three years. So, first of all, we can confirm that the company has delivered a great performance in terms of earnings growth over this period.
As for the outlook, analysts covering the company are likely to forecast growth of 6.3% per year over the next three years. With the market forecast to grow 15% annually, the company is bracing for a weaker result.
This information makes it clear why freenet is trading at a P/E ratio that is below the market. Apparently many shareholders were uncomfortable holding on to the stock while the company may have a less successful future ahead of it.
The most important thing at the end
In general, we prefer to use the price-to-earnings ratio to determine what the market thinks about the overall health of a company.
As we suspected, our examination of freenet’s analyst forecasts revealed that the weaker earnings outlook is contributing to the low P/E ratio. At this point, investors believe that the potential for earnings improvement is not great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to create a barrier to the share price at this level.
Don’t forget that there may be other risks too. We have for example 1 warning sign for freenet identified that you should be aware of.
Naturally You can find a fantastic investment by looking at a few good candidates. So take a look at these free List of companies with a strong growth record and a low P/E ratio.
Valuation is complex, but we are here to simplify it.
Find out whether freenet is undervalued or overvalued with our detailed analysis Fair value estimates, potential risks, dividends, insider trading and the company’s financial condition contains .
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This article from Simply Wall St is general in nature. We comment solely based on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to provide you with long-term oriented analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
