It's Down 35% But ADDvise Group AB (publ) (STO:ADDV A) Could Be Riskier Than It Looks

To the annoyance of some shareholders, ADDvise Group AB (publ) (STO:ADDV A) shares are down a considerable 35% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 79% share price decline.

After such a large drop in price, ADDvise Group's price-to-earnings (or "P/E") ratio of 19.2x 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 22x and even P/E's above 38x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, ADDvise Group's earnings have gone into reverse gear, which is not great. 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.

View our latest analysis for ADDvise Group

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

How Is ADDvise Group's Growth Trending?

In order to justify its P/E ratio, ADDvise Group would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 658% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Looking ahead now, EPS is anticipated to climb by 31% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 26%, which is noticeably less attractive.

In light of this, it's peculiar that ADDvise Group's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

ADDvise Group's recently weak share price has pulled its P/E below most other companies. 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 ADDvise Group currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - ADDvise Group has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.

You might be able to find a better investment than ADDvise Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (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.