Oil and Gas Exploration and Production AD's (BUL:NGAZ) 28% Jump Shows Its Popularity With Investors

Oil and Gas Exploration and Production AD (BUL:NGAZ) shares have had a really impressive month, gaining 28% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.3% in the last twelve months.

After such a large jump in price, Oil and Gas Exploration and Production AD's price-to-earnings (or "P/E") ratio of 30.1x might make it look like a strong sell right now compared to the market in Bulgaria, where around half of the companies have P/E ratios below 15x and even P/E's below 6x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For instance, Oil and Gas Exploration and Production AD's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Oil and Gas Exploration and Production AD

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

How Is Oil and Gas Exploration and Production AD's Growth Trending?

In order to justify its P/E ratio, Oil and Gas Exploration and Production AD would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 15%. Still, the latest three year period has seen an excellent 364% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is only predicted to deliver 20% 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 understandable that Oil and Gas Exploration and Production AD's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Oil and Gas Exploration and Production AD's P/E

Shares in Oil and Gas Exploration and Production AD have built up some good momentum lately, which has really inflated its 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.

As we suspected, our examination of Oil and Gas Exploration and Production AD revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Oil and Gas Exploration and Production AD (1 is concerning!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Oil and Gas Exploration and Production 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.