Optimistic Investors Push Berner Industrier AB (STO:BERNER B) Shares Up 43% But Growth Is Lacking

Berner Industrier AB (STO:BERNER B) shares have continued their recent momentum with a 43% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 73%.

After such a large jump in price, Berner Industrier may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.8x, since almost half of all companies in Sweden have P/E ratios under 21x and even P/E's lower than 13x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Berner Industrier. View them for free.

Berner Industrier could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Berner Industrier

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Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a frustrating 11% decrease to the company's bottom line. Even so, admirably EPS has lifted 92% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 19% per annum during the coming three years according to the one analyst following the company. That's shaping up to be similar to the 20% each year growth forecast for the broader market.

With this information, we find it interesting that Berner Industrier is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Bottom Line On Berner Industrier's P/E

Berner Industrier shares have received a push in the right direction, but its P/E is elevated too. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Berner Industrier currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Berner Industrier is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Berner Industrier'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.