Why Investors Shouldn't Be Surprised By Clas Ohlson AB (publ)'s (STO:CLAS B) 26% Share Price Surge

Clas Ohlson AB (publ) (STO:CLAS B) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last month tops off a massive increase of 136% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Clas Ohlson's P/E ratio of 22.8x, since the median price-to-earnings (or "P/E") ratio in Sweden is also close to 23x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Clas Ohlson as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. 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

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

How Is Clas Ohlson's Growth Trending?

Clas Ohlson's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 182% gain to the company's bottom line. As a result, it also grew EPS by 21% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 19% per annum as estimated by the two analysts watching the company. With the market predicted to deliver 19% growth per annum, the company is positioned for a comparable earnings result.

With this information, we can see why Clas Ohlson is trading at a fairly similar P/E to the market. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Clas Ohlson's P/E

Its shares have lifted substantially and now Clas Ohlson's P/E is also back up to the market median. 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.

As we suspected, our examination of Clas Ohlson's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Clas Ohlson, and understanding these should be part of your investment process.

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