Earnings Working Against Boliden AB (publ)'s (STO:BOL) Share Price

With a price-to-earnings (or "P/E") ratio of 11.5x Boliden AB (publ) (STO:BOL) may be sending very 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 39x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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There hasn't been much to differentiate Boliden's and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

See our latest analysis for Boliden

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

How Is Boliden's Growth Trending?

In order to justify its P/E ratio, Boliden would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 2.5% gain to the company's bottom line. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 32% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 8.5% per annum as estimated by the analysts watching the company. With the market predicted to deliver 18% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Boliden's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

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

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.

We've established that Boliden maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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.

It is also worth noting that we have found 1 warning sign for Boliden that you need to take into consideration.

If these risks are making you reconsider your opinion on Boliden, 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.