Tecnotree Oyj's (HEL:TEM1V) Share Price Boosted 33% But Its Business Prospects Need A Lift Too

Tecnotree Oyj (HEL:TEM1V) shares have had a really impressive month, gaining 33% 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 28% over that time.

In spite of the firm bounce in price, Tecnotree Oyj's price-to-earnings (or "P/E") ratio of 10.6x might still 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 18x and even P/E's above 28x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Tecnotree Oyj as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Tecnotree Oyj

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

How Is Tecnotree Oyj's Growth Trending?

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

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. This isn't what shareholders were looking for as it means they've been left with a 30% decline in EPS over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 4.0% per year over the next three years. With the market predicted to deliver 14% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Tecnotree Oyj's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Tecnotree Oyj's P/E

Tecnotree Oyj's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Tecnotree Oyj's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Tecnotree Oyj that you should be aware of.

You might be able to find a better investment than Tecnotree 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.