Yahoo Finance Why We're Not Concerned Yet About HelloFresh SE's (ETR:HFG) 27% Share Price Plunge
HelloFresh SE (ETR:HFG) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.
In spite of the heavy fall in price, HelloFresh's price-to-earnings (or "P/E") ratio of 24.8x might still make it look like a strong sell right now compared to the market in Germany, where around half of the companies have P/E ratios below 15x and even P/E's below 8x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
HelloFresh could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.
View our latest analysis for HelloFresh
Want the full picture on analyst estimates for the company? Then our free report on HelloFresh will help you uncover what's on the horizon.
How Is HelloFresh's Growth Trending?
In order to justify its P/E ratio, HelloFresh would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 47%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Turning to the outlook, the next three years should generate growth of 38% each year as estimated by the analysts watching the company. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.
With this information, we can see why HelloFresh 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 Final Word
HelloFresh's shares may have retreated, but its P/E is still flying high. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that HelloFresh 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. It's hard to see the share price falling strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for HelloFresh (2 are concerning) you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
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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