Investors Appear Satisfied With Genovis AB (publ.)'s (STO:GENO) Prospects

When close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 22x, you may consider Genovis AB (publ.) (STO:GENO) as a stock to avoid entirely with its 46.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, Genovis AB (publ.)'s earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Genovis AB (publ.)

Keen to find out how analysts think Genovis AB (publ.)'s future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Genovis AB (publ.)?

In order to justify its P/E ratio, Genovis AB (publ.) would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 46% decrease to the company's bottom line. Even so, admirably EPS has lifted 33% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Looking ahead now, EPS is anticipated to climb by 23% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 21% each year, which is noticeably less attractive.

In light of this, it's understandable that Genovis AB (publ.)'s P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Genovis AB (publ.)'s P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Genovis AB (publ.) maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Genovis AB (publ.).

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.