WEBULL

There's No Escaping Sleep Cycle AB (publ)'s (STO:SLEEP) Muted Earnings

Simply Wall St · 4d ago

Sleep Cycle AB (publ)'s (STO:SLEEP) price-to-earnings (or "P/E") ratio of 9.2x might make it look like a strong buy right now compared to the market in Sweden, where around half of the companies have P/E ratios above 23x and even P/E's above 34x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Sleep Cycle has been doing relatively well. 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 Sleep Cycle

pe-multiple-vs-industry
OM:SLEEP Price to Earnings Ratio vs Industry January 4th 2026
Keen to find out how analysts think Sleep Cycle'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?

The only time you'd be truly comfortable seeing a P/E as depressed as Sleep Cycle's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 6.8% last year. The latest three year period has also seen an excellent 52% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings growth is heading into negative territory, declining 7.9% over the next year. Meanwhile, the broader market is forecast to expand by 29%, which paints a poor picture.

In light of this, it's understandable that Sleep Cycle's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Sleep Cycle's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Sleep Cycle's analyst forecasts revealed that its outlook for shrinking earnings 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sleep Cycle, and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).