Investors Holding Back On Beijer Alma AB (publ) (STO:BEIA B)

With a median price-to-earnings (or "P/E") ratio of close to 22x in Sweden, you could be forgiven for feeling indifferent about Beijer Alma AB (publ)'s (STO:BEIA B) P/E ratio of 20.9x. 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.

Beijer Alma hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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Is There Some Growth For Beijer Alma?

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

Retrospectively, the last year delivered a frustrating 7.2% decrease to the company's bottom line. Even so, admirably EPS has lifted 45% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 25% as estimated by the four analysts watching the company. With the market only predicted to deliver 22%, the company is positioned for a stronger earnings result.

In light of this, it's curious that Beijer Alma's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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 Beijer Alma's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Beijer Alma that you should be aware of.

If these risks are making you reconsider your opinion on Beijer Alma, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.