Optimistic Investors Push Sustainion Group AB (NGM:SUSG) Shares Up 26% But Growth Is Lacking

Despite an already strong run, Sustainion Group AB (NGM:SUSG) shares have been powering on, with a gain of 26% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.6% in the last twelve months.

After such a large jump in price, Sustainion Group may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 31.8x, since almost half of all companies in Sweden have P/E ratios under 23x and even P/E's lower than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Sustainion Group certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Sustainion 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 Sustainion Group's earnings, revenue and cash flow.

How Is Sustainion Group's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Sustainion Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 177% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 69% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 28% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Sustainion Group's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Sustainion Group's P/E?

The large bounce in Sustainion Group's shares has lifted the company's P/E to a fairly high level. 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 Sustainion Group currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 3 warning signs for Sustainion Group (1 doesn't sit too well with us!) that we have uncovered.

If you're unsure about the strength of Sustainion Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.