When close to half the companies in Norway have price-to-earnings ratios (or "P/E's") below 10x, you may consider Mowi ASA (OB:MOWI) as a stock to avoid entirely with its 22.5x P/E ratio. 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.
Mowi hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Check out our latest analysis for Mowi
Is There Enough Growth For Mowi?
The only time you'd be truly comfortable seeing a P/E as steep as Mowi's is when the company's growth is on track to outshine the market decidedly.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 61%. The last three years don't look nice either as the company has shrunk EPS by 22% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 123% during the coming year according to the nine analysts following the company. With the market only predicted to deliver 30%, the company is positioned for a stronger earnings result.
With this information, we can see why Mowi 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.
The Final Word
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 Mowi'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.
Plus, you should also learn about these 3 warning signs we've spotted with Mowi.
If these risks are making you reconsider your opinion on Mowi, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About OB:MOWI
Mowi
A seafood company, farms, produces, and supplies Atlantic salmon products worldwide.
Good value with adequate balance sheet and pays a dividend.
