Investors Continue Waiting On Sidelines For Daimler Truck Holding AG (ETR:DTG)
Daimler Truck Holding AG (ETR:DTG) has a low P/E ratio of 12.3x compared to the German market average of 19x, raising questions about its earnings performance. Despite a 31% decrease in earnings last year, the company has seen a 72% growth in EPS over the past three years. Analysts predict a 17% annual EPS growth in the next three years, aligning with market expectations. However, investor skepticism about future growth may be keeping the P/E low. Caution is advised due to identified risks in the company's outlook.
When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 19x, you may consider Daimler Truck Holding AG (ETR:DTG) as an attractive investment with its 12.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
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Daimler Truck Holding could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Check out our latest analysis for Daimler Truck Holding
Keen to find out how analysts think Daimler Truck Holding's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Daimler Truck Holding's is when the company's growth is on track to lag the market.
Retrospectively, the last year delivered a frustrating 31% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 72% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.
Looking ahead now, EPS is anticipated to climb by 17% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 17% each year, which is not materially different.
In light of this, it's peculiar that Daimler Truck Holding's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.
The Final Word
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.
We've established that Daimler Truck Holding currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.
You should always think about risks. Case in point, we've spotted 3 warning signs for Daimler Truck Holding you should be aware of, and 1 of them is a bit concerning.
If you're unsure about the strength of Daimler Truck Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
