Pinning Down Clas Ohlson AB (publ)'s (STO:CLAS B) P/E Is Difficult Right Now

There wouldn't be many who think Clas Ohlson AB (publ)'s (STO:CLAS B) price-to-earnings (or "P/E") ratio of 24.1x is worth a mention when the median P/E in Sweden is similar at about 23x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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With earnings growth that's superior to most other companies of late, Clas Ohlson has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

See our latest analysis for Clas Ohlson

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

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Clas Ohlson's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 73% gain to the company's bottom line. The latest three year period has also seen an excellent 69% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 4.8% per year as estimated by the dual analysts watching the company. With the market predicted to deliver 18% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Clas Ohlson is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Clas Ohlson's P/E

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.

We've established that Clas Ohlson currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Clas Ohlson that you need to be mindful of.

Of course, you might also be able to find a better stock than Clas Ohlson. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.