Investors Aren't Entirely Convinced By ITF Group AD's (BUL:ITF) Earnings

With a price-to-earnings (or "P/E") ratio of 6.4x ITF Group AD (BUL:ITF) may be sending very bullish signals at the moment, given that almost half of all companies in Bulgaria have P/E ratios greater than 18x and even P/E's higher than 30x are not unusual. 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, ITF Group AD 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for ITF Group AD

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

How Is ITF Group AD's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like ITF Group AD's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 66% last year. The strong recent performance means it was also able to grow EPS by 619% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 21% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that ITF Group AD's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From ITF Group AD's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that ITF Group 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 ITF Group AD (2 are significant) you should be aware of.

If you're unsure about the strength of ITF Group AD'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.