Jetpak Top Holding AB (publ)’s (STO:JETPAK) price-to-earnings (or “P/E”) ratio of 15.1x might make it look like a buy right now compared to the market in Sweden, where around half of the companies have P/E ratios above 23x and even P/E’s above 44x 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 limited.
With earnings that are retreating more than the market’s of late, Jetpak Top Holding has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn’t going to improve at all. If you still like the company, you’d want its earnings trajectory to turn around before making any decisions. Or at the very least, you’d be hoping the earnings slide doesn’t get any worse if your plan is to pick up some stock while it’s out of favour.
Check out our latest analysis for Jetpak Top Holding
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Jetpak Top Holding would need to produce sluggish growth that’s trailing the market.
Retrospectively, the last year delivered a frustrating 32% decrease to the company’s bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it’s fair to say that earnings growth has been inconsistent recently for the company.
Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the only analyst watching the company. That’s shaping up to be similar to the 19% per year growth forecast for the broader market.
In light of this, it’s peculiar that Jetpak Top 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 Key Takeaway
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.
Our examination of Jetpak Top Holding’s analyst forecasts revealed that its market-matching earnings outlook isn’t contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
You always need to take note of risks, for example – Jetpak Top Holding has 1 warning sign we think you should be aware of.
You might be able to find a better investment than Jetpak Top Holding. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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This article by Simply Wall St is general in nature. 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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