Lindab International AB (publ) (STO:LIAB) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable

Lindab International AB (publ) (STO:LIAB) shares have had a really impressive month, gaining 27% after a shaky period beforehand. 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.

Following the firm bounce in price, given close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 21x, you may consider Lindab International as a stock to avoid entirely with its 48.3x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Lindab International 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 recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Lindab International

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

What Are Growth Metrics Telling Us About The High P/E?

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

Retrospectively, the last year delivered a frustrating 56% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 67% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 51% each year over the next three years. With the market only predicted to deliver 20% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Lindab International's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Lindab International's P/E

Shares in Lindab International have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

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

Having said that, be aware Lindab International is showing 3 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Lindab International, 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.