Trifork Group AG's (CPH:TRIFOR) Shares Climb 28% But Its Business Is Yet to Catch Up

Trifork Group AG (CPH:TRIFOR) shareholders have had their patience rewarded with a 28% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Trifork Group's price-to-earnings (or "P/E") ratio of 15x right now seems quite "middle-of-the-road" compared to the market in Denmark, where the median P/E ratio is around 16x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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With earnings growth that's superior to most other companies of late, Trifork Group has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Trifork Group

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

Is There Some Growth For Trifork Group?

There's an inherent assumption that a company should be matching the market for P/E ratios like Trifork Group's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. Still, lamentably EPS has fallen 44% in aggregate from three years ago, which is disappointing. 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 10.0% each year as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 16% each year growth forecast for the broader market.

In light of this, it's curious that Trifork Group's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Trifork Group's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Trifork Group's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Trifork Group that you need to be mindful of.

You might be able to find a better investment than Trifork Group. 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.