The Market Doesn't Like What It Sees From Bravida Holding AB (publ)'s (STO:BRAV) Earnings Yet

When close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 23x, you may consider Bravida Holding AB (publ) (STO:BRAV) as an attractive investment with its 17.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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For example, consider that Bravida Holding's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Bravida Holding

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Bravida Holding will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/E as low as Bravida Holding's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 6.7% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 8.1% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 27% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Bravida Holding is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Bravida Holding maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Bravida Holding with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.