Moment Group AB (STO:MOMENT) Held Back By Insufficient Growth Even After Shares Climb 27%

Moment Group AB (STO:MOMENT) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

In spite of the firm bounce in price, Moment Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.2x, since almost half of all companies in Sweden have P/E ratios greater than 24x and even P/E's higher than 45x 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.

For example, consider that Moment Group's financial performance has been poor lately as its earnings have been in decline. 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.

Check out our latest analysis for Moment Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Moment Group's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 28% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Moment Group is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Moment Group's P/E

Moment Group's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

We've established that Moment Group maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Moment Group (1 doesn't sit too well with us!) that you need to be mindful of.

You might be able to find a better investment than Moment Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.