Vertiseit AB (publ)'s (STO:VERT B) 26% Jump Shows Its Popularity With Investors

Vertiseit AB (publ) (STO:VERT B) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The annual gain comes to 120% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies in Sweden have price-to-earnings ratios (or "P/E's") below 23x, you may consider Vertiseit as a stock to avoid entirely with its 44.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Vertiseit as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Vertiseit

Want the full picture on analyst estimates for the company? Then our free report on Vertiseit will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

Vertiseit's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 207%. The strong recent performance means it was also able to grow EPS by 746% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 28% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 21% each year, which is noticeably less attractive.

With this information, we can see why Vertiseit is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Vertiseit's P/E is flying high just like its stock has during the last month. 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 Vertiseit's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Vertiseit you should be aware of.

You might be able to find a better investment than Vertiseit. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.