Talenom Oyj (HEL:TNOM) Stocks Shoot Up 28% But Its P/E Still Looks Reasonable

Talenom Oyj (HEL:TNOM) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

After such a large jump in price, given around half the companies in Finland have price-to-earnings ratios (or "P/E's") below 19x, you may consider Talenom Oyj as a stock to potentially avoid with its 25.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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Recent times have been pleasing for Talenom Oyj as its earnings have risen in spite of the market's earnings going into reverse. 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.

View 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.

If we review the last year of earnings growth, the company posted a terrific increase of 96%. However, this wasn't enough as the latest three year period has seen a very unpleasant 44% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 39% per annum as estimated by the two analysts watching the company. With the market only predicted to deliver 16% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Talenom Oyj's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Talenom Oyj's P/E is getting right up there since its shares have risen strongly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Talenom Oyj'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Talenom Oyj (1 is a bit concerning) you should be aware of.

If you're unsure about the strength of Talenom Oyj'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.