Logistea AB (publ) (STO:LOGI A) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected

Logistea AB (publ) (STO:LOGI A) shareholders have had their patience rewarded with a 31% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 95% in the last year.

After such a large jump in price, Logistea may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 60.7x, since almost half of all companies in Sweden have P/E ratios under 23x and even P/E's lower than 15x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Logistea 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.

View our latest analysis for Logistea

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

Is There Enough Growth For Logistea?

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

Retrospectively, the last year delivered an exceptional 68% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 87% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 27% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Logistea is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

Logistea's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Logistea currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely 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.

Before you take the next step, you should know about the 3 warning signs for Logistea (2 are a bit unpleasant!) that we have uncovered.

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.

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