AlphaHelix Molecular Diagnostics AB (publ) (NGM:ALPH) Stock Rockets 35% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, AlphaHelix Molecular Diagnostics AB (publ) (NGM:ALPH) shares have been powering on, with a gain of 35% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.

After such a large jump in price, given close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 23x, you may consider AlphaHelix Molecular Diagnostics as a stock to potentially avoid with its 27.6x 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 lofty.

With earnings growth that's exceedingly strong of late, AlphaHelix Molecular Diagnostics has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for AlphaHelix Molecular Diagnostics

Although there are no analyst estimates available for AlphaHelix Molecular Diagnostics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as AlphaHelix Molecular Diagnostics' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 402% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. 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 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that AlphaHelix Molecular Diagnostics is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On AlphaHelix Molecular Diagnostics' P/E

AlphaHelix Molecular Diagnostics' P/E is getting right up there since its shares have risen strongly. 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.

Our examination of AlphaHelix Molecular Diagnostics revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with AlphaHelix Molecular Diagnostics (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on AlphaHelix Molecular Diagnostics, 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.
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