Qt Group Oyj's (HEL:QTCOM) Share Price Matching Investor Opinion

Qt Group Oyj's (HEL:QTCOM) price-to-earnings (or "P/E") ratio of 49.7x might make it look like a strong sell right now compared to the market in Finland, where around half of the companies have P/E ratios below 18x and even P/E's below 12x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Qt Group Oyj has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Qt Group Oyj

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Is There Enough Growth For Qt Group Oyj?

In order to justify its P/E ratio, Qt Group Oyj would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. The latest three year period has also seen an excellent 109% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 29% per year during the coming three years according to the four analysts following the company. With the market only predicted to deliver 15% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Qt Group 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

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Qt Group 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. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for Qt Group Oyj that you need to take into consideration.

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