Despite an already strong run, Green Landscaping Group AB (publ) (STO:GREEN) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.
Since its price has surged higher, given close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 23x, you may consider Green Landscaping Group as a stock to avoid entirely with its 57.7x P/E ratio. 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.
Green Landscaping Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.free report is a great place to start.
Does Growth Match The High P/E?
In order to justify its P/E ratio, Green Landscaping Group would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings growth, the company posted a terrific increase of 352%. The strong recent performance means it was also able to grow EPS by 41% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 47% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 18% per annum, which is noticeably less attractive.
In light of this, it's understandable that Green Landscaping 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 Bottom Line On Green Landscaping Group's P/E
The strong share price surge has got Green Landscaping Group's P/E rushing to great heights as well. 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.
As we suspected, our examination of Green Landscaping Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
And what about other risks? Every company has them, and we've spotted 3 warning signs for Green Landscaping Group you should know about.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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