Market Cool On Doro AB (publ)'s (STO:DORO) Earnings

With a price-to-earnings (or "P/E") ratio of 12x Doro AB (publ) (STO:DORO) 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 44x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Doro as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Doro

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

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

Doro'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.

Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. The latest three year period has also seen a 10% overall rise in EPS, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 19% each year over the next three years. With the market predicted to deliver 19% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Doro's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Doro's P/E

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.

Our examination of Doro's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Doro that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.