Top Kinisis Travel Public Limited (CSE:TOP) Surges 32% Yet Its Low P/E Is No Reason For Excitement

Top Kinisis Travel Public Limited (CSE:TOP) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, Top Kinisis Travel's price-to-earnings (or "P/E") ratio of 2.1x might still make it look like a strong buy right now compared to the market in Cyprus, where around half of the companies have P/E ratios above 8x and even P/E's above 16x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Top Kinisis Travel certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Top Kinisis Travel

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

How Is Top Kinisis Travel's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 111% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 23% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Top Kinisis Travel's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Top Kinisis Travel's P/E?

Shares in Top Kinisis Travel are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Top Kinisis Travel maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for Top Kinisis Travel (2 are significant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Top Kinisis Travel, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.