Earnings Not Telling The Story For Zinzino AB (publ) (STO:ZZ B) After Shares Rise 29%

Zinzino AB (publ) (STO:ZZ B) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Zinzino's price-to-earnings (or "P/E") ratio of 21.7x right now seems quite "middle-of-the-road" compared to the market in Sweden, where the median P/E ratio is around 23x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Zinzino certainly has been doing a good job lately as it's been growing earnings more 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Zinzino

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

Is There Some Growth For Zinzino?

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

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 71% overall rise in EPS, aided somewhat 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 15% each year as estimated by the only analyst watching the company. With the market predicted to deliver 21% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Zinzino's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Zinzino's P/E?

Zinzino appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Zinzino's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. 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. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Zinzino with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might also be able to find a better stock than Zinzino. 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.