Signatur Fastigheter AB (publ)'s (STO:SIGN B) price-to-earnings (or "P/E") ratio of 8x 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 24x and even P/E's above 46x are quite common. 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.
For instance, Signatur Fastigheter's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Any Growth For Signatur Fastigheter?
Signatur Fastigheter'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.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 29%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we can see why Signatur Fastigheter is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Key Takeaway
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.
We've established that Signatur Fastigheter maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 6 warning signs for Signatur Fastigheter (3 are a bit unpleasant!) that you should be aware of.
If these risks are making you reconsider your opinion on Signatur Fastigheter, explore our interactive list of high quality stocks to get an idea of what else is out there.
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