There Is A Reason AB Industrivärden (publ)'s (STO:INDU A) Price Is Undemanding

When close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 25x, you may consider AB Industrivärden (publ) (STO:INDU A) as an attractive investment with its 16.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

AB Industrivärden hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

See our latest analysis for AB Industrivärden

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

Is There Any Growth For AB Industrivärden?

The only time you'd be truly comfortable seeing a P/E as low as AB Industrivärden's is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 71% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 46% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings growth is heading into negative territory, declining 5.3% over the next year. With the market predicted to deliver 25% growth , that's a disappointing outcome.

In light of this, it's understandable that AB Industrivärden's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

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.

We've established that AB Industrivärden maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for AB Industrivärden (1 is a bit unpleasant) you should be aware of.

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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This article by Simply Wall St is general in nature. 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.
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