Sentiment Still Eluding C-Rad AB (publ) (STO:CRAD B)

With a price-to-earnings (or "P/E") ratio of 17.9x C-Rad AB (publ) (STO:CRAD B) may be sending bullish signals at the moment, given that almost half of all companies in Sweden have P/E ratios greater than 24x and even P/E's higher than 44x 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.

C-Rad certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for C-Rad

If you'd like to see what analysts are forecasting going forward, you should check out our free report on C-Rad.

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

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

Taking a look back first, we see that the company grew earnings per share by an impressive 143% last year. Pleasingly, EPS has also lifted 135% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 33% during the coming year according to the one analyst following the company. With the market only predicted to deliver 29%, the company is positioned for a stronger earnings result.

With this information, we find it odd that C-Rad is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From C-Rad's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of C-Rad's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for C-Rad with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on C-Rad, 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.