Electrolux Professional AB (publ)'s (STO:EPRO B) Price Is Out Of Tune With Earnings

With a price-to-earnings (or "P/E") ratio of 25.6x Electrolux Professional AB (publ) (STO:EPRO B) may be sending bearish signals at the moment, given that almost half of all companies in Sweden have P/E ratios under 22x and even P/E's lower than 14x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

While the market has experienced earnings growth lately, Electrolux Professional's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Electrolux Professional

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

How Is Electrolux Professional's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Electrolux Professional's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 6.5% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 77% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 30% over the next year. With the market predicted to deliver 32% growth , the company is positioned for a comparable earnings result.

With this information, we find it interesting that Electrolux Professional is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Electrolux Professional's P/E

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.

Our examination of Electrolux Professional's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with Electrolux Professional.

You might be able to find a better investment than Electrolux Professional. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.