Embla Medical hf.'s (CPH:EMBLA) Share Price Matching Investor Opinion

With a price-to-earnings (or "P/E") ratio of 24.3x Embla Medical hf. (CPH:EMBLA) may be sending very bearish signals at the moment, given that almost half of all companies in Denmark have P/E ratios under 13x and even P/E's lower than 7x are not unusual. 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.

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Embla Medical hf certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Embla Medical hf

Keen to find out how analysts think Embla Medical hf's future stacks up against the industry? In that case, our free report is a great place to start .

Is There Enough Growth For Embla Medical hf?

Embla Medical hf's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 15% gain to the company's bottom line. As a result, it also grew EPS by 5.6% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 72% each year over the next three years. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

With this information, we can see why Embla Medical hf 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

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.

We've established that Embla Medical hf maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Embla Medical hf with six simple checks.

You might be able to find a better investment than Embla Medical hf. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.