Investors Holding Back On Huhtamäki Oyj (HEL:HUH1V)

Huhtamäki Oyj's (HEL:HUH1V) price-to-earnings (or "P/E") ratio of 14.8x 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 29x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings that are retreating more than the market's of late, Huhtamäki Oyj has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Huhtamäki Oyj's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Huhtamäki Oyj's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 28% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 15% per year during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the market is forecast to expand by 16% each year, which is not materially different.

In light of this, it's peculiar that Huhtamäki Oyj's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

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 Huhtamäki Oyj's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Having said that, be aware Huhtamäki Oyj is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Huhtamäki 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.