QleanAir AB's (STO:QAIR) 26% Dip In Price Shows Sentiment Is Matching Earnings

Unfortunately for some shareholders, the QleanAir AB (STO:QAIR) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.

Following the heavy fall in price, given close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 20x, you may consider QleanAir as an attractive investment with its 10.5x 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.

QleanAir could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for QleanAir

Keen to find out how analysts think QleanAir's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For QleanAir?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. Even so, admirably EPS has lifted 152% 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 three years should generate growth of 13% per annum as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 16% each year, which is noticeably more attractive.

In light of this, it's understandable that QleanAir'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 QleanAir's P/E

QleanAir's P/E has taken a tumble along with its share price. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that QleanAir maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

You always need to take note of risks, for example - QleanAir has 4 warning signs we think you should be aware of.

You might be able to find a better investment than QleanAir. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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.