Potential Upside For Oil and Gas Exploration and Production AD (BUL:NGAZ) Not Without Risk

When close to half the companies in Bulgaria have price-to-earnings ratios (or "P/E's") above 23x, you may consider Oil and Gas Exploration and Production AD (BUL:NGAZ) as an attractive investment with its 14x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Our free stock report includes 3 warning signs investors should be aware of before investing in Oil and Gas Exploration and Production AD. Read for free now.

Earnings have risen at a steady rate over the last year for Oil and Gas Exploration and Production AD, which is generally not a bad outcome. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

See our latest analysis for Oil and Gas Exploration and Production AD

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

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Oil and Gas Exploration and Production AD's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 4.5% last year. Pleasingly, EPS has also lifted 213% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 19% 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 Oil and Gas Exploration and Production AD'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 Final Word

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 Oil and Gas Exploration and Production AD 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. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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.

It is also worth noting that we have found 3 warning signs for Oil and Gas Exploration and Production AD (1 is a bit unpleasant!) that you need to take into consideration.

If you're unsure about the strength of Oil and Gas Exploration and Production 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.