Why investors should not be surprised by Dividend Sweden AB (publ)’s (NGM: DIVI B) low P / E
With a price to profit ratio (or “P / E”) of 2.3x Dividend Sweden AB (publ) (NGM: DIVI B) can send very bullish signals at the moment, considering that almost half of all companies in Sweden have P / E ratios greater than 24x and also P / E higher than 53x are not uncommon. Although it is not wise to just take P / E at face value as there may be an explanation as to why it is so limited.
Dividend Sweden has really done a good job lately because it has increased revenues at a really fast pace. One possibility is that P / E is low because investors believe that this strong profit growth may actually underperform the broader market in the near future. If you like the company, you hope that is not the case so that you can potentially pick up some shares while it is at a disadvantage.
See our latest analysis for Dividend Sweden
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Does the growth match the low P / E?
Dividend Sweden’s P / E ratio would be typical for a company that is expected to deliver very poor growth or even declining profits, and above all perform much worse than the market.
In retrospect, the past year delivered an exceptional profit of 320% to the company’s results. However, the last three-year period has not been so good overall because it has not managed to provide any growth at all. Consequently, shareholders would probably not have been too happy with the unstable growth rate in the medium term.
Weighing the latest profit path in the medium term against the broader market’s annual forecast for expansion of 21% shows that it is noticeably less attractive on an annual basis.
With this information, we can see why Dividend Sweden is trading at a P / E lower than the market. It seems that most investors expect to see the recent limited growth rate continue into the future and are only willing to pay a reduced amount for the stock.
What can we learn from Sweden’s P / E dividend?
It is claimed that the price-to-profit ratio is a worse measure of value in some industries, but it can be a powerful business sentiment indicator.
We have noted that Dividend Sweden maintains its low P / E due to the weakness in the last three-year growth being lower than the broader market forecast, as expected. At this stage, investors believe that the potential for an improvement in earnings is not large enough to justify a higher P / E ratio. Unless recent conditions improve over the medium term, they will continue to be a barrier to stock prices around these levels.
With that said, be aware Dividend Sweden shows 3 warning signs in our investment analysis you should know.
If you are uncertain about the strength of Dividend Sweden’s operations, why not explore our interactive list of stocks with solid trading bases for any other companies you may have missed.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst forecasts only using an impartial method and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any shares and does not take into account your goals or your financial situation. We strive to provide you with long-term focused analysis driven by basic data. Please note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the shares mentioned.