Market Participants Recognise Plejd AB (publ)'s (NGM:PLEJD) Earnings Pushing Shares 26% Higher

The Plejd AB (publ) (NGM:PLEJD) share price has done very well over the last month, posting an excellent gain of 26%. The annual gain comes to 211% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Plejd's price-to-earnings (or "P/E") ratio of 50.8x might make it look like a strong sell right now compared to the market in Sweden, where around half of the companies have P/E ratios below 23x and even P/E's below 14x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Plejd certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Plejd

Keen to find out how analysts think Plejd's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Plejd would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 128%. The latest three year period has also seen an excellent 140% 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.

Turning to the outlook, the next three years should generate growth of 39% per annum as estimated by the sole analyst watching the company. With the market only predicted to deliver 21% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Plejd's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Plejd's P/E is flying high just like its stock has during the last month. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Plejd maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Plejd that you need to take into consideration.

Of course, you might also be able to find a better stock than Plejd. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.