When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 16x, you may consider TMM Real Estate Development Plc (FRA:TR61) as a highly attractive investment with its 3.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
For instance, TMM Real Estate Development's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. 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 out of favour.
View our latest analysis for TMM Real Estate Development
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TMM Real Estate Development's earnings, revenue and cash flow.
Is There Any Growth For TMM Real Estate Development?
TMM Real Estate Development's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
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 63%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 6.2% shows it's noticeably less attractive on an annualised basis.
In light of this, it's understandable that TMM Real Estate Development's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On TMM Real Estate Development's P/E
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.
As we suspected, our examination of TMM Real Estate Development revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.