AVTECH Sweden AB (publ)'s (STO:AVT B) P/E Is Still On The Mark Following 29% Share Price Bounce

Despite an already strong run, AVTECH Sweden AB (publ) (STO:AVT B) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 114% in the last year.

Since its price has surged higher, AVTECH Sweden may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 46.2x, 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.

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AVTECH Sweden 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.

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Is There Enough Growth For AVTECH Sweden?

The only time you'd be truly comfortable seeing a P/E as steep as AVTECH Sweden's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. The strong recent performance means it was also able to grow EPS by 921% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 46% per year as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 17% each year growth forecast for the broader market.

With this information, we can see why AVTECH Sweden is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From AVTECH Sweden's P/E?

Shares in AVTECH Sweden have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of AVTECH Sweden's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Before you settle on your opinion, we've discovered 2 warning signs for AVTECH Sweden that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.