Talenom Oyj (HEL:TNOM) Not Lagging Market On Growth Or Pricing

With a price-to-earnings (or "P/E") ratio of 28.1x Talenom Oyj (HEL:TNOM) may be sending bearish signals at the moment, given that almost half of all companies in Finland have P/E ratios under 19x and even P/E's lower than 14x 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 as high as it is.

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Talenom Oyj certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Talenom Oyj

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

Is There Enough Growth For Talenom Oyj?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 62% last year. Still, incredibly EPS has fallen 51% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 38% each year during the coming three years according to the dual analysts following the company. 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 Talenom Oyj is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

We've established that Talenom Oyj 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. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Talenom Oyj (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.