Insufficient Growth At Wallenius Wilhelmsen ASA (OB:WAWI) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 4.7x Wallenius Wilhelmsen ASA (OB:WAWI) may be sending very bullish signals at the moment, given that almost half of all companies in Norway have P/E ratios greater than 11x and even P/E's higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Wallenius Wilhelmsen certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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How Is Wallenius Wilhelmsen's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 29%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 5.3% per year as estimated by the four analysts watching the company. With the market predicted to deliver 23% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Wallenius Wilhelmsen is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Wallenius Wilhelmsen's P/E

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.

As we suspected, our examination of Wallenius Wilhelmsen's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with Wallenius Wilhelmsen.

If these risks are making you reconsider your opinion on Wallenius Wilhelmsen, 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.