The Market Lifts Unlimited Travel Group UTG AB (publ) (STO:UTG) Shares 27% But It Can Do More

Unlimited Travel Group UTG AB (publ) (STO:UTG) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 84% in the last year.

Although its price has surged higher, Unlimited Travel Group UTG may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.1x, since almost half of all companies in Sweden have P/E ratios greater than 23x and even P/E's higher than 37x are not unusual. 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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Unlimited Travel Group UTG certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Unlimited Travel Group UTG

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Unlimited Travel Group UTG's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

Unlimited Travel Group UTG's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 118% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 772% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 26% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Unlimited Travel Group UTG's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

The latest share price surge wasn't enough to lift Unlimited Travel Group UTG'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.

We've established that Unlimited Travel Group UTG currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - Unlimited Travel Group UTG has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Unlimited Travel Group UTG, 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.