Nordic Paper Holding AB (publ)'s (STO:NPAPER) Share Price Is Matching Sentiment Around Its Earnings

Nordic Paper Holding AB (publ)'s (STO:NPAPER) price-to-earnings (or "P/E") ratio of 7.9x might make it look like a strong buy right now compared to the market in Sweden, where around half of the companies have P/E ratios above 21x 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 highly reduced P/E.

Nordic Paper Holding could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

Check out our latest analysis for Nordic Paper Holding

Keen to find out how analysts think Nordic Paper Holding's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Nordic Paper Holding's Growth Trending?

Nordic Paper Holding's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered a frustrating 26% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 61% 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.

Turning to the outlook, the next three years should generate growth of 3.6% each year as estimated by the dual analysts watching the company. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Nordic Paper Holding's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Nordic Paper Holding's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Nordic Paper Holding maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Nordic Paper Holding 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.