Investor Optimism Abounds Elisa Oyj (HEL:ELISA) But Growth Is Lacking

When close to half the companies in Finland have price-to-earnings ratios (or "P/E's") below 18x, you may consider Elisa Oyj (HEL:ELISA) as a stock to potentially avoid with its 20.7x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

The recently shrinking earnings for Elisa Oyj have been in line with the market. One possibility is that the P/E is high because investors think the company can turn things around and break free from the broader downward trend in earnings. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Elisa Oyj

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

Is There Enough Growth For Elisa Oyj?

In order to justify its P/E ratio, Elisa Oyj would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 2.6% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 11% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 5.5% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader market.

With this information, we find it concerning that Elisa Oyj is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Elisa Oyj currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Elisa Oyj (1 is a bit concerning!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.