Some Confidence Is Lacking In Lifco AB (publ)'s (STO:LIFCO B) P/E

Lifco AB (publ)'s (STO:LIFCO B) price-to-earnings (or "P/E") ratio of 44.9x might make it look like a strong sell right now compared to the market in Sweden, where around half of the companies have P/E ratios below 22x and even P/E's below 14x are quite common. 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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Lifco certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Lifco

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

Is There Enough Growth For Lifco?

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

If we review the last year of earnings growth, the company posted a worthy increase of 10%. The latest three year period has also seen a 28% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 10% during the coming year according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 30%, which is noticeably more attractive.

With this information, we find it concerning that Lifco is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Lifco's P/E?

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 Lifco's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Lifco that you need to take into consideration.

You might be able to find a better investment than Lifco. 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.