Wilh. Wilhelmsen Holding ASA's (OB:WWI) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 3.3x Wilh. Wilhelmsen Holding ASA (OB:WWI) may be sending very bullish signals at the moment, given that almost half of all companies in Norway have P/E ratios greater than 12x and even P/E's higher than 23x 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.

Wilh. Wilhelmsen Holding certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Wilh. Wilhelmsen Holding

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How Is Wilh. Wilhelmsen Holding's Growth Trending?

In order to justify its P/E ratio, Wilh. Wilhelmsen Holding would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 17% last year. The latest three year period has also seen an excellent 302% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 7.7% per year during the coming three years according to the dual analysts following the company. With the market predicted to deliver 21% growth per annum, that's a disappointing outcome.

In light of this, it's understandable that Wilh. Wilhelmsen Holding's P/E would sit below the majority of other companies. 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 Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Wilh. Wilhelmsen Holding maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Wilh. Wilhelmsen Holding you should know about.

You might be able to find a better investment than Wilh. Wilhelmsen Holding. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.