Lacklustre Performance Is Driving ProfilGruppen AB (publ)'s (STO:PROF B) 26% Price Drop

The ProfilGruppen AB (publ) (STO:PROF B) share price has fared very poorly over the last month, falling by a substantial 26%. Indeed, the recent drop has reduced its annual gain to a relatively sedate 6.0% over the last twelve months.

After such a large drop in price, given about half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 24x, you may consider ProfilGruppen as a highly attractive investment with its 9.4x P/E ratio. 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.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

As an illustration, earnings have deteriorated at ProfilGruppen over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.

Check out our latest analysis for ProfilGruppen

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ProfilGruppen will help you shine a light on its historical performance.

How Is ProfilGruppen's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 12% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 43% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 25% shows it's an unpleasant look.

In light of this, it's understandable that ProfilGruppen's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

Having almost fallen off a cliff, ProfilGruppen's share price has pulled its P/E way down as well. 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.

As we suspected, our examination of ProfilGruppen revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware ProfilGruppen is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.