Improved Earnings Required Before What's Cooking Group NV/SA (EBR:WHATS) Stock's 27% Jump Looks Justified

What's Cooking Group NV/SA (EBR:WHATS) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Although its price has surged higher, What's Cooking Group/SA's price-to-earnings (or "P/E") ratio of 10.6x might still make it look like a buy right now compared to the market in Belgium, where around half of the companies have P/E ratios above 15x and even P/E's above 27x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for What's Cooking Group/SA as its earnings have been rising very briskly. 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 What's Cooking Group/SA

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

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as What's Cooking Group/SA's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 190%. The latest three year period has also seen an excellent 64% overall rise in EPS, aided 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.

Comparing that to the market, which is predicted to deliver 25% 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 What's Cooking Group/SA's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On What's Cooking Group/SA's P/E

What's Cooking Group/SA's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of What's Cooking Group/SA revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about this 1 warning sign we've spotted with What's Cooking Group/SA.

If you're unsure about the strength of What's Cooking Group/SA's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.