Insufficient growth at Profoto Holding AB (publ) (STO:PRFO) is hurting its share price

Profoto Holding AB (publ). (STO:PRFO)’s price-to-earnings ratio (or “P/E”) of 13.7 could give the impression of a buy compared to the market in Sweden, where about half of the companies have higher P/E ratios of 23x and even P/E ratios over 41x are quite common. Still, we would have to dig a little deeper to determine whether there is a rational basis for the reduced P/E ratio.

Profoto Holding could do better as its profits have been declining recently while most other companies have seen positive earnings growth. It seems that many expect the weak earnings performance to continue, which has depressed the P/E ratio. If this is the case, existing shareholders will likely have difficulty getting excited about the future direction of the share price.

Check out our latest analysis for Profoto Holding

Want a complete overview of analyst estimates for the company? Then ours free The Profoto Holding report will help you figure out what’s on the horizon.

How is Profoto Holding growing?

A P/E ratio as low as Profoto Holding’s would only really be comfortable for you if the company’s growth lags the market.

If we look at the last year of earnings, disappointingly the company’s profit fell by 35%. The last three years didn’t look good either, with the company’s overall earnings per share shrinking by 12%. Unfortunately, we have to admit that the company has failed to increase its earnings during this time.

Looking ahead, next year is likely to bring lower returns, with earnings expected to fall 3.1%, according to the only analyst covering the company. Given that the market is forecast to grow by 31%, this is a disappointing result.

Given this information, we’re not surprised to see Profoto Holding trading at a P/E ratio below market price. However, there is no guarantee that the P/E ratio has already bottomed out, as earnings move inversely. Even maintaining these prices could be difficult as the weak outlook weighs on stocks.

What can we learn from Profoto Holding’s P/E ratio?

We typically caution against reading too much into the price-to-earnings ratio when making investment decisions, even though it can reveal a lot about what other market participants think about the company.

As we suspected, our review of Profoto Holding’s analyst forecasts found that the prospect of falling profits is contributing to its low P/E ratio. For now, shareholders accept the low P/E ratio, acknowledging that future earnings are unlikely to hold any pleasant surprises. Unless these conditions improve, they will continue to act as a barrier to share price near these levels.

You should always think about risks. Case in point: We discovered it 3 warning signs for Profoto Holding You should be aware of these, and two of them are significant.

If yes uncertain about the strength of Profoto Holding’s businessExplore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.