A Piece Of The Puzzle Missing From Trace Group Hold PLC's (BUL:T57) 29% Share Price Climb

Trace Group Hold PLC (BUL:T57) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 54%.

In spite of the firm bounce in price, Trace Group Hold's price-to-earnings (or "P/E") ratio of 6.2x might still make it look like a strong buy right now compared to the market in Bulgaria, where around half of the companies have P/E ratios above 17x and even P/E's above 35x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been quite advantageous for Trace Group Hold as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 Trace Group Hold

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Trace Group Hold's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Trace Group Hold would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 202% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 214% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 21% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Trace Group Hold's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Trace Group Hold's P/E

Even after such a strong price move, Trace Group Hold's P/E still trails the rest of the market significantly. 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 Trace Group Hold revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You need to take note of risks, for example - Trace Group Hold has 4 warning signs (and 2 which can't be ignored) we think you should know about.

If you're unsure about the strength of Trace Group Hold'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.