Ework Group AB (publ)'s (STO:EWRK) Price Is Right But Growth Is Lacking After Shares Rocket 28%

Ework Group AB (publ) (STO:EWRK) shareholders have had their patience rewarded with a 28% share price jump in the last month. 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.

Although its price has surged higher, given about half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 24x, you may still consider Ework Group as an attractive investment with its 20.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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While the market has experienced earnings growth lately, Ework Group's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Ework Group

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Is There Any Growth For Ework Group?

There's an inherent assumption that a company should underperform the market for P/E ratios like Ework Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.8% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 14% per annum during the coming three years according to the lone analyst following the company. That's shaping up to be materially lower than the 18% per annum growth forecast for the broader market.

In light of this, it's understandable that Ework Group's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Ework Group's P/E

The latest share price surge wasn't enough to lift Ework Group's P/E close to the market median. 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.

As we suspected, our examination of Ework Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Ework Group, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Ework Group, 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.