AAK AB (publ.)'s (STO:AAK) Price Is Right But Growth Is Lacking

Explore AAK AB (publ.)'s Fair Values from the Community and select yours

AAK AB (publ.)'s (STO:AAK) price-to-earnings (or "P/E") ratio of 20.3x might make it look like a buy right now compared to the market in Sweden, where around half of the companies have P/E ratios above 24x and even P/E's above 39x are quite common. 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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AAK AB (publ.) 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 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 AAK AB (publ.)

Want the full picture on analyst estimates for the company? Then our free report on AAK AB (publ.) will help you uncover what's on the horizon.

How Is AAK AB (publ.)'s Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.3%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 111% in total over the last three years. 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.

Looking ahead now, EPS is anticipated to climb by 7.8% per year during the coming three years according to the seven analysts following the company. With the market predicted to deliver 17% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why AAK AB (publ.) is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

As we suspected, our examination of AAK AB (publ.)'s analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for AAK AB (publ.) that you should be aware of.

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).

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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.