Investors Appear Satisfied With BTS Group AB (publ)'s (STO:BTS B) Prospects As Shares Rocket 26%

BTS Group AB (publ) (STO:BTS B) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 5.6% isn't as attractive.

Following the firm bounce in price, BTS Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 33.1x, since almost half of all companies in Sweden have P/E ratios under 22x and even P/E's lower than 13x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

BTS Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. 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.

See our latest analysis for BTS Group

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How Is BTS Group's Growth Trending?

BTS Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 8.9%. Even so, admirably EPS has lifted 157% 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 33% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 23% growth forecast for the broader market.

In light of this, it's understandable that BTS Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

BTS Group's P/E is flying high just like its stock has during the last month. 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 BTS Group 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. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for BTS Group that you should be aware of.

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.