Real Bulland AD (BUL:RBL) Stock Rockets 40% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Real Bulland AD (BUL:RBL) shares have been powering on, with a gain of 40% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 40% in the last year.

Following the firm bounce in price, given around half the companies in Bulgaria have price-to-earnings ratios (or "P/E's") below 13x, you may consider Real Bulland AD as a stock to potentially avoid with its 17x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's exceedingly strong of late, Real Bulland AD has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Real Bulland AD

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Real Bulland AD will help you shine a light on its historical performance.

Is There Enough Growth For Real Bulland AD?

The only time you'd be truly comfortable seeing a P/E as high as Real Bulland AD's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 171% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 17% 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 alarming that Real Bulland AD's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From Real Bulland AD's P/E?

Real Bulland AD shares have received a push in the right direction, but its P/E is elevated too. 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.

Our examination of Real Bulland AD revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Real Bulland AD (3 are a bit concerning) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.