Beijer Alma AB (publ) (STO:BEIA B) Surges 27% Yet Its Low P/E Is No Reason For Excitement

Beijer Alma AB (publ) (STO:BEIA B) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, given about half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 23x, you may still consider Beijer Alma as an attractive investment with its 17.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

We've discovered 2 warning signs about Beijer Alma. View them for free.

Beijer Alma certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Beijer Alma

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Beijer Alma would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 39% gain to the company's bottom line. The latest three year period has also seen an excellent 37% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 5.7% per annum over the next three years. With the market predicted to deliver 20% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Beijer Alma'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.

The Key Takeaway

The latest share price surge wasn't enough to lift Beijer Alma's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Beijer Alma maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Beijer Alma that you need to take into consideration.

Of course, you might also be able to find a better stock than Beijer Alma. 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.