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There's No Escaping Hapag-Lloyd Aktiengesellschaft's (ETR:HLAG) Muted Earnings

When close to half the companies in Germany have price-to-earnings ratios (or "P/E's") above 16x, you may consider Hapag-Lloyd Aktiengesellschaft (ETR:HLAG) as a highly attractive investment with its 2.1x 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.

Recent times have been advantageous for Hapag-Lloyd as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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 Hapag-Lloyd

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hapag-Lloyd.

Does Growth Match The Low P/E?

Hapag-Lloyd'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.

If we review the last year of earnings growth, the company posted a terrific increase of 190%. The strong recent performance means it was also able to grow EPS by 5,315% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings growth is heading into negative territory, declining 63% each year over the next three years. Meanwhile, the broader market is forecast to expand by 12% per year, which paints a poor picture.

With this information, we are not surprised that Hapag-Lloyd is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Hapag-Lloyd's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Hapag-Lloyd's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Hapag-Lloyd (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Hapag-Lloyd. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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