Eleven Capital AD's (BUL:11C) Subdued P/E Might Signal An Opportunity

Eleven Capital AD's (BUL:11C) price-to-earnings (or "P/E") ratio of 9.4x might make it look like a buy right now compared to the market in Bulgaria, where around half of the companies have P/E ratios above 14x and even P/E's above 33x 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 limited.

As an illustration, earnings have deteriorated at Eleven Capital AD 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.

Check out our latest analysis for Eleven Capital AD

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 Eleven Capital AD's earnings, revenue and cash flow.

How Is Eleven Capital AD's Growth Trending?

In order to justify its P/E ratio, Eleven Capital AD would need to produce sluggish growth that's trailing the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 54%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 400% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Eleven Capital AD is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Eleven Capital AD currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Eleven Capital AD that you should be aware of.

Of course, you might also be able to find a better stock than Eleven Capital AD. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.