Addtech AB (publ.)'s (STO:ADDT B) Shares Climb 27% But Its Business Is Yet to Catch Up

Despite an already strong run, Addtech AB (publ.) (STO:ADDT B) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.

Since its price has surged higher, Addtech AB (publ.) may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 51.3x, since almost half of all companies in Sweden have P/E ratios under 23x and even P/E's lower than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Addtech AB (publ.) as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Addtech AB (publ.)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Addtech AB (publ.).

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

Addtech AB (publ.)'s P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a decent 12% gain to the company's bottom line. The latest three year period has also seen an excellent 125% overall rise in EPS, aided somewhat 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 climb by 8.9% per year during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we find it concerning that Addtech AB (publ.) is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Addtech AB (publ.)'s P/E?

Addtech AB (publ.)'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.

Our examination of Addtech AB (publ.)'s analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for Addtech AB (publ.) that we have uncovered.

You might be able to find a better investment than Addtech AB (publ.). 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com