With Qt Group Oyj (HEL:QTCOM) It Looks Like You'll Get What You Pay For

Qt Group Oyj's (HEL:QTCOM) price-to-earnings (or "P/E") ratio of 74.3x 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 16x and even P/E's below 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Qt Group Oyj certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Qt Group Oyj

Keen to find out how analysts think Qt Group Oyj's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Qt Group Oyj's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 44%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 51% per annum as estimated by the three analysts watching the company. With the market only predicted to deliver 15% per year, 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 Bottom Line On Qt Group Oyj's P/E

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.

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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Qt Group Oyj you should know about.

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 P/E below 20x (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.