Investors Holding Back On Mediacle Group AB (publ) (NGM:MEGR)

With a price-to-earnings (or "P/E") ratio of 18.2x Mediacle Group AB (publ) (NGM:MEGR) may be sending bullish signals at the moment, given that almost half of all companies in Sweden have P/E ratios greater than 23x and even P/E's higher than 38x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Mediacle Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Mediacle Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Mediacle Group's earnings, revenue and cash flow.

How Is Mediacle Group's Growth Trending?

Mediacle Group's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 49%. The strong recent performance means it was also able to grow EPS by 293% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 26% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Mediacle Group's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Mediacle Group's P/E

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.

We've established that Mediacle Group currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - Mediacle Group has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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