With a price-to-earnings (or "P/E") ratio of 19.3x AQ Group AB (publ) (STO:AQ) may be sending bullish signals at the moment, given that almost half of all companies in Sweden have P/E ratios greater than 23x and even P/E's higher than 41x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Recent earnings growth for AQ Group has been in line with the market. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.
Check out our latest analysis for AQ Group
Is There Any Growth For AQ Group?
There's an inherent assumption that a company should underperform the market for P/E ratios like AQ Group's to be considered reasonable.
If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. Although pleasingly EPS has lifted 74% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Looking ahead now, EPS is anticipated to climb by 2.1% per annum during the coming three years according to the one analyst following the company. With the market predicted to deliver 22% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that AQ Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
What We Can Learn From AQ Group's P/E?
Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of AQ Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for AQ Group with six simple checks on some of these key factors.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.
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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.
About OM:AQ
AQ Group
Manufactures and sells components and systems for industrial customers in Sweden, rest of European countries, and internationally.
Flawless balance sheet with proven track record.
