What Alimak Group AB (publ)'s (STO:ALIG) 27% Share Price Gain Is Not Telling You

The Alimak Group AB (publ) (STO:ALIG) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days bring the annual gain to a very sharp 58%.

In spite of the firm bounce in price, there still wouldn't be many who think Alimak Group's price-to-earnings (or "P/E") ratio of 24.8x is worth a mention when the median P/E in Sweden is similar at about 23x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Alimak Group has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

View our latest analysis for Alimak Group

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

How Is Alimak Group's Growth Trending?

In order to justify its P/E ratio, Alimak Group would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. 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 14% per annum as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 21% per annum growth forecast for the broader market.

In light of this, it's curious that Alimak Group's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

Its shares have lifted substantially and now Alimak Group's P/E is also back up to the market median. 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 Alimak Group's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.