Logicom Public Limited (CSE:LOG) Stocks Shoot Up 26% But Its P/E Still Looks Reasonable

Logicom Public Limited (CSE:LOG) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 55% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Logicom's P/E ratio of 5.7x, since the median price-to-earnings (or "P/E") ratio in Cyprus is also close to 7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Logicom certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Logicom

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

Is There Some Growth For Logicom?

The only time you'd be comfortable seeing a P/E like Logicom's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 68% gain to the company's bottom line. Pleasingly, EPS has also lifted 91% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 23% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Logicom is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Logicom's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Logicom maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Logicom that 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.