Earnings Tell The Story For Magle Chemoswed Holding AB (publ) (STO:MAGLE) As Its Stock Soars 28%

The Magle Chemoswed Holding AB (publ) (STO:MAGLE) share price has done very well over the last month, posting an excellent gain of 28%. Notwithstanding the latest gain, the annual share price return of 5.2% isn't as impressive.

After such a large jump in price, Magle Chemoswed Holding's price-to-earnings (or "P/E") ratio of 28.6x might make it look like a sell right now compared to the market in Sweden, where around half of the companies have P/E ratios below 21x and even P/E's below 13x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Magle Chemoswed Holding has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Magle Chemoswed Holding

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Magle Chemoswed Holding.

Is There Enough Growth For Magle Chemoswed Holding?

There's an inherent assumption that a company should outperform the market for P/E ratios like Magle Chemoswed Holding's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 33% last year. Pleasingly, EPS has also lifted 369% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 95% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 22% growth forecast for the broader market.

In light of this, it's understandable that Magle Chemoswed Holding's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Magle Chemoswed Holding shares have received a push in the right direction, but its P/E is elevated too. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Magle Chemoswed Holding's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Magle Chemoswed Holding that you need to be mindful of.

Of course, you might also be able to find a better stock than Magle Chemoswed Holding. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.