Cheffelo AB (publ) (STO:CHEF) Stock Rockets 25% But Many Are Still Ignoring The Company

Cheffelo AB (publ) (STO:CHEF) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 114% in the last year.

In spite of the firm bounce in price, Cheffelo may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.3x, 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.

We've discovered 3 warning signs about Cheffelo. View them for free.

With earnings growth that's superior to most other companies of late, Cheffelo has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Cheffelo

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

How Is Cheffelo's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 68% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 60% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 18% per annum during the coming three years according to the three analysts following the company. That's shaping up to be similar to the 20% per annum growth forecast for the broader market.

In light of this, it's peculiar that Cheffelo's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Cheffelo's P/E?

Despite Cheffelo's shares building up a head of steam, its P/E still lags most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Cheffelo's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Cheffelo.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.