ITAB Shop Concept AB (publ)'s (STO:ITAB) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

Despite an already strong run, ITAB Shop Concept AB (publ) (STO:ITAB) 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 43%.

Even after such a large jump in price, given about half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 22x, you may still consider ITAB Shop Concept as an attractive investment with its 13x 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.

Recent times have been advantageous for ITAB Shop Concept as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for ITAB Shop Concept

Want the full picture on analyst estimates for the company? Then our free report on ITAB Shop Concept will help you uncover what's on the horizon.

How Is ITAB Shop Concept's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 26% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 9.5% per year during the coming three years according to the one analyst following the company. With the market predicted to deliver 19% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why ITAB Shop Concept is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On ITAB Shop Concept's P/E

Despite ITAB Shop Concept's shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that ITAB Shop Concept maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 1 warning sign with ITAB Shop Concept, and understanding should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.