Earnings Working Against Elisa Oyj's (HEL:ELISA) Share Price

Elisa Oyj's (HEL:ELISA) price-to-earnings (or "P/E") ratio of 16.4x might make it look like a buy right now compared to the market in Finland, where around half of the companies have P/E ratios above 20x and even P/E's above 28x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been more advantageous for Elisa Oyj as its earnings haven't fallen as much as the rest of the market. It might be that many expect the comparatively superior earnings performance to degrade substantially, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. But at the very least, you'd be hoping that earnings don't fall off a cliff completely if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Elisa Oyj

Want the full picture on analyst estimates for the company? Then our free report on Elisa Oyj will help you uncover what's on the horizon.

Is There Any Growth For Elisa Oyj?

Elisa Oyj's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered virtually the same number to the company's bottom line as the year before. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. Therefore, it's fair to say that earnings growth has definitely eluded the company recently.

Looking ahead now, EPS is anticipated to climb by 5.5% each year during the coming three years according to the analysts following the company. With the market predicted to deliver 16% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Elisa Oyj is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Elisa Oyj's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising 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 Elisa Oyj (1 is a bit concerning!) that you need to be mindful of.

You might be able to find a better investment than Elisa Oyj. 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.