Earnings Tell The Story For Swedish Orphan Biovitrum AB (publ) (STO:SOBI)

When close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 23x, you may consider Swedish Orphan Biovitrum AB (publ) (STO:SOBI) as a stock to potentially avoid with its 31.1x 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 as high as it is.

Swedish Orphan Biovitrum certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Swedish Orphan Biovitrum

Keen to find out how analysts think Swedish Orphan Biovitrum's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Swedish Orphan Biovitrum?

In order to justify its P/E ratio, Swedish Orphan Biovitrum would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 24% each year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 21% per annum growth forecast for the broader market.

With this information, we can see why Swedish Orphan Biovitrum 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 Bottom Line On Swedish Orphan Biovitrum's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Swedish Orphan Biovitrum maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Swedish Orphan Biovitrum you should know about.

You might be able to find a better investment than Swedish Orphan Biovitrum. 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.