Earnings Tell The Story For Lordos Hotels (Holdings) Public Limited (CSE:LHH) As Its Stock Soars 27%

The Lordos Hotels (Holdings) Public Limited (CSE:LHH) share price has done very well over the last month, posting an excellent gain of 27%. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.

Since its price has surged higher, given around half the companies in Cyprus have price-to-earnings ratios (or "P/E's") below 7x, you may consider Lordos Hotels (Holdings) as a stock to potentially avoid with its 10.3x 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 as high as it is.

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As an illustration, earnings have deteriorated at Lordos Hotels (Holdings) over the last year, which is not ideal at all. 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Lordos Hotels (Holdings)

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

Is There Enough Growth For Lordos Hotels (Holdings)?

There's an inherent assumption that a company should outperform the market for P/E ratios like Lordos Hotels (Holdings)'s to be considered reasonable.

Retrospectively, the last year delivered a frustrating 8.3% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 232% 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.

This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Lordos Hotels (Holdings) is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Lordos Hotels (Holdings)'s P/E

Lordos Hotels (Holdings) shares have received a push in the right direction, but its P/E is elevated too. 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 Lordos Hotels (Holdings) maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Lordos Hotels (Holdings) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.