SA Catana Group (EPA:CATG) Looks Inexpensive After Falling 33% But Perhaps Not Attractive Enough

The SA Catana Group (EPA:CATG) share price has fared very poorly over the last month, falling by a substantial 33%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Even after such a large drop in price, given about half the companies in France have price-to-earnings ratios (or "P/E's") above 15x, you may still consider SA Catana Group as a highly attractive investment with its 3.1x 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 so limited.

We've discovered 3 warning signs about SA Catana Group. View them for free.

Recent times have been advantageous for SA Catana Group as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

See our latest analysis for SA Catana Group

Keen to find out how analysts think SA Catana Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is SA Catana Group's Growth Trending?

SA Catana Group's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 61%. The latest three year period has also seen an excellent 122% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 45% as estimated by the dual analysts watching the company. With the market predicted to deliver 13% growth , that's a disappointing outcome.

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

The Final Word

SA Catana Group's P/E looks about as weak as its stock price lately. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of SA Catana Group's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. 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 3 warning signs we've spotted with SA Catana Group (including 2 which are significant).

You might be able to find a better investment than SA Catana Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.