Corporación Acciona Energías Renovables, S.A.'s (BME:ANE) Share Price Is Matching Sentiment Around Its Earnings

Corporación Acciona Energías Renovables, S.A.'s (BME:ANE) price-to-earnings (or "P/E") ratio of 12.4x might make it look like a buy right now compared to the market in Spain, where around half of the companies have P/E ratios above 18x and even P/E's above 32x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Corporación Acciona Energías Renovables hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Corporación Acciona Energías Renovables

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Is There Any Growth For Corporación Acciona Energías Renovables?

In order to justify its P/E ratio, Corporación Acciona Energías Renovables would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 157% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to slump, contracting by 8.9% per annum during the coming three years according to the analysts following the company. That's not great when the rest of the market is expected to grow by 15% per annum.

In light of this, it's understandable that Corporación Acciona Energías Renovables' 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

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 Corporación Acciona Energías Renovables maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Corporación Acciona Energías Renovables (of which 3 are a bit unpleasant!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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