There's Reason For Concern Over P/F Bakkafrost's (OB:BAKKA) Price

With a price-to-earnings (or "P/E") ratio of 25.3x P/F Bakkafrost (OB:BAKKA) may be sending very bearish signals at the moment, given that almost half of all companies in Norway have P/E ratios under 11x and even P/E's lower than 7x are not unusual. 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.

Recent times have been advantageous for P/F Bakkafrost as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for P/F Bakkafrost

If you'd like to see what analysts are forecasting going forward, you should check out our free report on P/F Bakkafrost.

Is There Enough Growth For P/F Bakkafrost?

The only time you'd be truly comfortable seeing a P/E as steep as P/F Bakkafrost's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 106%. However, this wasn't enough as the latest three year period has seen a very unpleasant 7.8% drop in EPS in aggregate. 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 27% per annum as estimated by the seven analysts watching the company. That's shaping up to be similar to the 25% per year growth forecast for the broader market.

With this information, we find it interesting that P/F Bakkafrost is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From P/F Bakkafrost'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.

Our examination of P/F Bakkafrost's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for P/F Bakkafrost with six simple checks on some of these key factors.

If you're unsure about the strength of P/F Bakkafrost's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.