S.C. De Reparat Material Rulant Reva S.A.'s (BVB:REVA) Price Is Right But Growth Is Lacking After Shares Rocket 27%
S.C. De Reparat Material Rulant Reva S.A. (BVB:REVA) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
Even after such a large jump in price, S.C. De Reparat Material Rulant Reva's price-to-earnings (or "P/E") ratio of 4.8x might still make it look like a strong buy right now compared to the market in Romania, where around half of the companies have P/E ratios above 16x and even P/E's above 40x 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.
For example, consider that S.C. De Reparat Material Rulant Reva's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
View our latest analysis for S.C. De Reparat Material Rulant Reva
What Are Growth Metrics Telling Us About The Low P/E?
S.C. De Reparat Material Rulant Reva's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms 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 higher than the company's recent medium-term annualised growth rates.
In light of this, it's understandable that S.C. De Reparat Material Rulant Reva's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
What We Can Learn From S.C. De Reparat Material Rulant Reva's P/E?
Shares in S.C. De Reparat Material Rulant Reva are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.
We've established that S.C. De Reparat Material Rulant Reva maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
You need to take note of risks, for example - S.C. De Reparat Material Rulant Reva has 3 warning signs (and 2 which are significant) we think you should know about.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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