Bokusgruppen AB (publ)'s (STO:BOKUS) Prospects Need A Boost To Lift Shares

When close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") above 24x, you may consider Bokusgruppen AB (publ) (STO:BOKUS) as an attractive investment with its 17.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Bokusgruppen certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Bokusgruppen

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

How Is Bokusgruppen's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 45%. The strong recent performance means it was also able to grow EPS by 1,903% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the one analyst following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader market.

With this information, we can see why Bokusgruppen is trading at a P/E lower than the market. 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.

We've established that Bokusgruppen maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Bokusgruppen that you should be aware of.

If you're unsure about the strength of Bokusgruppen's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.