Market Participants Recognise Magle Chemoswed Holding AB (publ)'s (STO:MAGLE) Earnings Pushing Shares 37% Higher

Despite an already strong run, Magle Chemoswed Holding AB (publ) (STO:MAGLE) shares have been powering on, with a gain of 37% in the last thirty days. The last 30 days bring the annual gain to a very sharp 45%.

After such a large jump in price, Magle Chemoswed Holding may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 40.4x, since almost half of all companies in Sweden have P/E ratios under 22x and even P/E's lower than 15x 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 lofty.

With earnings growth that's superior to most other companies of late, Magle Chemoswed Holding has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out 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?

In order to justify its P/E ratio, Magle Chemoswed Holding would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 54% last year. Pleasingly, EPS has also lifted 256% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 42% each year as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 19% each year growth forecast for the broader market.

With this information, we can see why Magle Chemoswed Holding is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got Magle Chemoswed Holding's P/E rushing to great heights as well. 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.

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. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Magle Chemoswed Holding that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com