Compañía Española de Viviendas en Alquiler S.A.'s (BME:CEV) Shares Bounce 35% But Its Business Still Trails The Market

The Compañía Española de Viviendas en Alquiler S.A. (BME:CEV) share price has done very well over the last month, posting an excellent gain of 35%. Looking further back, the 25% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, given about half the companies in Spain have price-to-earnings ratios (or "P/E's") above 20x, you may still consider Compañía Española de Viviendas en Alquiler as an attractive investment with its 10.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Compañía Española de Viviendas en Alquiler has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Compañía Española de Viviendas en Alquiler

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Compañía Española de Viviendas en Alquiler.

Is There Any Growth For Compañía Española de Viviendas en Alquiler?

In order to justify its P/E ratio, Compañía Española de Viviendas en Alquiler would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 71% gain to the company's bottom line. The latest three year period has also seen a 13% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 8.3% per year during the coming three years according to the sole analyst following the company. That's not great when the rest of the market is expected to grow by 16% each year.

In light of this, it's understandable that Compañía Española de Viviendas en Alquiler's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

The latest share price surge wasn't enough to lift Compañía Española de Viviendas en Alquiler's P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Compañía Española de Viviendas en Alquiler maintains its low P/E on the weakness of its forecast for sliding earnings, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Compañía Española de Viviendas en Alquiler.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.