Investors Interested In Alm. Brand A/S' (CPH:ALMB) Earnings

Alm. Brand A/S' (CPH:ALMB) price-to-earnings (or "P/E") ratio of 30.7x might make it look like a strong sell right now compared to the market in Denmark, where around half of the companies have P/E ratios below 15x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Alm. Brand certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Alm. Brand

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Is There Enough Growth For Alm. Brand?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Alm. Brand's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 59%. However, this wasn't enough as the latest three year period has seen a very unpleasant 88% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 26% per annum as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 14% each year growth forecast for the broader market.

With this information, we can see why Alm. Brand 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.

What We Can Learn From Alm. Brand'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 Alm. Brand's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Having said that, be aware Alm. Brand is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

If you're unsure about the strength of Alm. Brand's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.