Advanced Soltech Sweden AB (publ) (STO:ASAB) Might Not Be As Mispriced As It Looks After Plunging 25%

Unfortunately for some shareholders, the Advanced Soltech Sweden AB (publ) (STO:ASAB) share price has dived 25% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

Since its price has dipped substantially, Advanced Soltech Sweden may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of -7.2x, since almost half of all companies in Sweden have P/E ratios greater than 20x and even P/E's higher than 37x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

While the market has experienced earnings growth lately, Advanced Soltech Sweden's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 Advanced Soltech Sweden

Keen to find out how analysts think Advanced Soltech Sweden's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Advanced Soltech Sweden?

In order to justify its P/E ratio, Advanced Soltech Sweden would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 514% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 66% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

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

The Bottom Line On Advanced Soltech Sweden's P/E

Having almost fallen off a cliff, Advanced Soltech Sweden's share price has pulled its P/E way down as well. 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.

Our examination of Advanced Soltech Sweden's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - Advanced Soltech Sweden has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

You might be able to find a better investment than Advanced Soltech Sweden. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.