Investors Appear Satisfied With Detection Technology Oyj's (HEL:DETEC) Prospects As Shares Rocket 27%

Detection Technology Oyj (HEL:DETEC) shareholders have had their patience rewarded with a 27% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.2% in the last twelve months.

Since its price has surged higher, Detection Technology Oyj's price-to-earnings (or "P/E") ratio of 46.4x 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Detection Technology 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.

Check out our latest analysis for Detection Technology Oyj

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

How Is Detection Technology Oyj's Growth Trending?

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

Retrospectively, the last year delivered a decent 7.6% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen an unpleasant 20% overall drop in EPS. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 43% per year as estimated by the five analysts watching the company. With the market only predicted to deliver 16% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Detection Technology 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.

What We Can Learn From Detection Technology Oyj's P/E?

The strong share price surge has got Detection Technology Oyj's P/E rushing to great heights as well. 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 Detection Technology Oyj's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Detection Technology Oyj with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.