Further Upside For Empresas Lipigas S.A. (SNSE:LIPIGAS) Shares Could Introduce Price Risks After 28% Bounce
The Empresas Lipigas S.A. (SNSE:LIPIGAS) share price has done very well over the last month, posting an excellent gain of 28%. The last month tops off a massive increase of 105% in the last year.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about Empresas Lipigas' P/E ratio of 12.5x, since the median price-to-earnings (or "P/E") ratio in Chile is also close to 12x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
The earnings growth achieved at Empresas Lipigas over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.
See our latest analysis for Empresas Lipigas
Does Growth Match The P/E?
Empresas Lipigas' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.
Retrospectively, the last year delivered an exceptional 29% gain to the company's bottom line. Pleasingly, EPS has also lifted 83% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
This is in contrast to the rest of the market, which is expected to grow by 10% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we find it interesting that Empresas Lipigas is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Final Word
Empresas Lipigas appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.
Our examination of Empresas Lipigas revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
Before you take the next step, you should know about the 2 warning signs for Empresas Lipigas that we have uncovered.
Of course, you might also be able to find a better stock than Empresas Lipigas. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.