Thunderful Group AB (STO:THUNDR) Looks Just Right With A 28% Price Jump

Thunderful Group AB (STO:THUNDR) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the last month did very little to improve the 59% share price decline over the last year.

After such a large jump in price, Thunderful Group's price-to-earnings (or "P/E") ratio of 29.7x might make it look like a strong sell right now compared to the market in Sweden, where around half of the companies have P/E ratios below 19x and even P/E's below 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Thunderful Group could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Thunderful Group

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Does Growth Match The High P/E?

In order to justify its P/E ratio, Thunderful Group would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 68% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 21% in total. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to climb by 277% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13%, which is noticeably less attractive.

In light of this, it's understandable that Thunderful Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has got Thunderful Group's P/E rushing to great heights as well. 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 Thunderful Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

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

If these risks are making you reconsider your opinion on Thunderful Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.