When close to half the companies in Russia have price-to-earnings ratios (or “P/E’s”) above 10x, you may consider Public Joint Stock Company Saratov Oil Refinery (MCX:KRKN) as a highly attractive investment with its 2.8x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it’s justified.
As an illustration, earnings have deteriorated at Saratov Oil Refinery over the last year, which is not ideal at all. 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.
See our latest analysis for Saratov Oil Refinery
What Are Growth Metrics Telling Us About The Low P/E?
In order to justify its P/E ratio, Saratov Oil Refinery would need to produce anemic growth that’s substantially trailing the market.
Retrospectively, the last year delivered a frustrating 27% decrease to the company’s bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 44% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
It’s interesting to note that the rest of the market is similarly expected to grow by 11% over the next year, which is fairly even with the company’s recent medium-term annualised growth rates.
In light of this, it’s peculiar that Saratov Oil Refinery’s P/E sits below the majority of other companies. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.
The Bottom Line On Saratov Oil Refinery’s P/E
The price-to-earnings ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We’ve established that Saratov Oil Refinery currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company’s performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.
You always need to take note of risks, for example – Saratov Oil Refinery has 1 warning sign we think you should be aware of.
If these risks are making you reconsider your opinion on Saratov Oil Refinery, explore our interactive list of high quality stocks to get an idea of what else is out there.
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This article by Simply Wall St is general in nature. 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.
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