Love Group Global Ltd's (ASX:LVE) Shares Bounce 29% But Its Business Still Trails The Market

Love Group Global Ltd (ASX:LVE) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Although its price has surged higher, given about half the companies in Australia have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Love Group Global as a highly attractive investment with its 7.3x 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.

With earnings growth that's exceedingly strong of late, Love Group Global has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, 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 Love Group Global

Although there are no analyst estimates available for Love Group Global, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Love Group Global's Growth Trending?

Love Group Global'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.

Taking a look back first, we see that the company grew earnings per share by an impressive 90% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Love Group Global'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 Love Group Global's P/E?

Love Group Global's recent share price jump still sees its P/E sitting firmly flat on the ground. We'd say 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 Love Group Global maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Love Group Global (2 are concerning!) that you need to take into consideration.

You might be able to find a better investment than Love Group Global. 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.