Kazakhtelecom JSC (FRA:KZTA) Held Back By Insufficient Growth Even After Shares Climb 69%

Kazakhtelecom JSC (FRA:KZTA) shares have had a really impressive month, gaining 69% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, Kazakhtelecom JSC may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.3x, since almost half of all companies in Germany have P/E ratios greater than 19x and even P/E's higher than 38x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been quite advantageous for Kazakhtelecom JSC as its earnings have been rising very briskly. 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 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 out of favour.

View our latest analysis for Kazakhtelecom JSC

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Kazakhtelecom JSC's earnings, revenue and cash flow.

Is There Any Growth For Kazakhtelecom JSC?

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

If we review the last year of earnings growth, the company posted a terrific increase of 69%. However, this wasn't enough as the latest three year period has seen a very unpleasant 57% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 26% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Kazakhtelecom JSC is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Kazakhtelecom JSC's P/E

The latest share price surge wasn't enough to lift Kazakhtelecom JSC's P/E close to the market median. 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 Kazakhtelecom JSC maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Kazakhtelecom JSC that you should be aware of.

If you're unsure about the strength of Kazakhtelecom JSC'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.