Improved Earnings Required Before Bilia AB (publ) (STO:BILI A) Shares Find Their Feet

Bilia AB (publ)'s (STO:BILI A) price-to-earnings (or "P/E") ratio of 14.9x might make it look like a buy right now compared to the market in Sweden, where around half of the companies have P/E ratios above 23x and even P/E's above 43x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Bilia could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Bilia

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Bilia would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 33%. As a result, earnings from three years ago have also fallen 39% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19% each year, which is noticeably more attractive.

In light of this, it's understandable that Bilia's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Bilia's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Bilia that you should be aware of.

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.