There's No Escaping Thunderful Group AB's (STO:THUNDR) Muted Earnings

Thunderful Group AB's (STO:THUNDR) price-to-earnings (or "P/E") ratio of 3.4x might make it look like a strong buy right now compared to the market in Sweden, where around half of the companies have P/E ratios above 23x and even P/E's above 39x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, Thunderful Group has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Thunderful Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Thunderful Group.

Is There Any Growth For Thunderful Group?

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

Retrospectively, the last year delivered an exceptional 165% gain to the company's bottom line. Pleasingly, EPS has also lifted 136% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 6.3% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 23% growth forecast for the broader market.

With this information, we can see why Thunderful Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Thunderful Group's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

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

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