Some Confidence Is Lacking In Ice Fish Farm AS (OB:IFISH) As Shares Slide 25%

Ice Fish Farm AS (OB:IFISH) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

Although its price has dipped substantially, given close to half the companies in Norway have price-to-earnings ratios (or "P/E's") below 13x, you may still consider Ice Fish Farm as a stock to avoid entirely with its 64.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Ice Fish Farm hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Ice Fish Farm?

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

Retrospectively, the last year delivered a frustrating 25% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 2,459% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 16% as estimated by the sole analyst watching the company. Meanwhile, the rest of the market is forecast to expand by 29%, which is noticeably more attractive.

In light of this, it's alarming that Ice Fish Farm's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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 Ice Fish Farm's P/E?

Ice Fish Farm's shares may have retreated, but its P/E is still flying high. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Ice Fish Farm 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Ice Fish Farm (2 make us uncomfortable!) that you need to be mindful of.

If you're unsure about the strength of Ice Fish Farm'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.