The Price Is Right For Qt Group Oyj (HEL:QTCOM) Even After Diving 28%

The Qt Group Oyj (HEL:QTCOM) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 15% share price drop.

Although its price has dipped substantially, Qt Group Oyj may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.3x, since almost half of all companies in Finland have P/E ratios under 18x and even P/E's lower than 13x are not unusual. 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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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. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Qt Group Oyj

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

Does Growth Match The High P/E?

Qt Group Oyj's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 62%. Pleasingly, EPS has also lifted 148% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 18% each year over the next three years. That's shaping up to be materially higher than the 13% each year growth forecast for the broader market.

With this information, we can see why Qt Group Oyj is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

There's still some solid strength behind Qt Group Oyj's P/E, if not its share price lately. 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.

We've established that Qt Group 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. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Qt Group Oyj that you should be aware of.

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.