Improved Earnings Required Before Höegh Autoliners ASA (OB:HAUTO) Stock's 28% Jump Looks Justified

Höegh Autoliners ASA (OB:HAUTO) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 117% in the last year.

In spite of the firm bounce in price, given about half the companies in Norway have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Höegh Autoliners as a highly attractive investment with its 3.9x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Höegh Autoliners has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Höegh Autoliners

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Höegh Autoliners' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 97% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 8.1% each year during the coming three years according to the four analysts following the company. Meanwhile, the broader market is forecast to expand by 17% each year, which paints a poor picture.

With this information, we are not surprised that Höegh Autoliners is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Höegh Autoliners' P/E

Höegh Autoliners' recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Höegh Autoliners' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Höegh Autoliners (including 1 which can't be ignored).

If you're unsure about the strength of Höegh Autoliners' 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.