In This Article:
There wouldn't be many who think Fugro N.V.'s (AMS:FUR) price-to-earnings (or "P/E") ratio of 17.2x is worth a mention when the median P/E in the Netherlands is similar at about 16x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Fugro certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
View our latest analysis for Fugro
Want the full picture on analyst estimates for the company? Then our free report on Fugro will help you uncover what's on the horizon.
Is There Some Growth For Fugro?
The only time you'd be comfortable seeing a P/E like Fugro's is when the company's growth is tracking the market closely.
If we review the last year of earnings growth, the company posted a terrific increase of 19%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Shifting to the future, estimates from the twin analysts covering the company suggest earnings should grow by 39% each year over the next three years. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader market.
With this information, we find it interesting that Fugro is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On Fugro's P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Fugro currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market 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.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Fugro (of which 1 is potentially serious!) you should know about.
If these risks are making you reconsider your opinion on Fugro, explore our interactive list of high quality stocks to get an idea of what else is out there.