Pinning Down AVTECH Sweden AB (publ)'s (STO:AVT B) P/E Is Difficult Right Now

It's not a stretch to say that AVTECH Sweden AB (publ)'s (STO:AVT B) price-to-earnings (or "P/E") ratio of 23.6x right now seems quite "middle-of-the-road" compared to the market in Sweden, where the median P/E ratio is around 24x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

AVTECH Sweden certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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.

Check out our latest analysis for AVTECH Sweden

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on AVTECH Sweden will help you shine a light on its historical performance.

How Is AVTECH Sweden's Growth Trending?

The only time you'd be comfortable seeing a P/E like AVTECH Sweden's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 50%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 28% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that AVTECH Sweden is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Key Takeaway

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.

We've established that AVTECH Sweden currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for AVTECH Sweden that you should be aware of.

Of course, you might also be able to find a better stock than AVTECH Sweden. 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.