Lacklustre Performance Is Driving Logista Integral, S.A.'s (BME:LOG) Low P/E

When close to half the companies in Spain have price-to-earnings ratios (or "P/E's") above 19x, you may consider Logista Integral, S.A. (BME:LOG) as an attractive investment with its 11.6x 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 limited.

Recent times haven't been advantageous for Logista Integral as its earnings have been rising slower than most other companies. It seems that many are expecting the uninspiring earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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Is There Any Growth For Logista Integral?

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

Retrospectively, the last year delivered a decent 9.3% gain to the company's bottom line. The latest three year period has also seen an excellent 57% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings growth is heading into negative territory, declining 2.3% per annum over the next three years. With the market predicted to deliver 9.2% growth per year, that's a disappointing outcome.

In light of this, it's understandable that Logista Integral's P/E would sit below the majority of other companies. 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 the weak outlook is weighing down the shares.

The Key Takeaway

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 Logista Integral 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Logista Integral (1 is potentially serious!) that you need to be mindful of.

If you're unsure about the strength of Logista Integral'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.