April 13, 2024

Why Investors Shouldn’t Be Surprised By Electrolux Professional AB (publ)’s (STO:EPRO B) Low P/E

With a price-to-earnings (or “P/E”) ratio of 19.2x Electrolux Professional AB (publ) (STO:EPRO B) may be sending bullish signals at the moment, given that almost half of all companies in Sweden have P/E ratios greater than 22x and even P/E’s higher than 39x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it’s justified.

Recent times have been advantageous for Electrolux Professional 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Electrolux Professional

OM:EPRO B Price to Earnings Ratio vs Industry December 25th 2023

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

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

There’s an inherent assumption that a company should underperform the market for P/E ratios like Electrolux Professional’s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 33% gain to the company’s bottom line. The strong recent performance means it was also able to grow EPS by 115% in total over the last three years. Therefore, it’s fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest earnings growth is heading into negative territory, declining 1.4% over the next year. That’s not great when the rest of the market is expected to grow by 23%.

In light of this, it’s understandable that Electrolux Professional’s P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Electrolux Professional’s P/E

Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We’ve established that Electrolux Professional maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn’t great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

A lot of potential risks can sit within a company’s balance sheet. Take a look at our free balance sheet analysis for Electrolux Professional with six simple checks on some of these key factors.

You might be able to find a better investment than Electrolux Professional. 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).

Valuation is complex, but we’re helping make it simple.

Find out whether Electrolux Professional is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.

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