Market Cool On Valmet Oyj's (HEL:VALMT) Earnings

Valmet Oyj's (HEL:VALMT) price-to-earnings (or "P/E") ratio of 15.3x might make it look like a buy right now compared to the market in Finland, where around half of the companies have P/E ratios above 19x and even P/E's above 30x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times haven't been advantageous for Valmet Oyj as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Valmet Oyj

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Valmet Oyj would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 22%. This means it has also seen a slide in earnings over the longer-term as EPS is down 23% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 18% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 13% each year, which is noticeably less attractive.

With this information, we find it odd that Valmet Oyj is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Valmet Oyj's P/E?

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.

We've established that Valmet Oyj currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Valmet Oyj with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Valmet Oyj, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.