Further Upside For ZCCM Investments Holdings Plc (EPA:MLZAM) Shares Could Introduce Price Risks After 37% Bounce

ZCCM Investments Holdings Plc (EPA:MLZAM) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Although its price has surged higher, given close to half the companies in France have price-to-earnings ratios (or "P/E's") above 15x, you may still consider ZCCM Investments Holdings as a highly attractive investment with its 5.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

For example, consider that ZCCM Investments Holdings' financial performance has been poor lately as it's earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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 ZCCM Investments Holdings

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 ZCCM Investments Holdings' earnings, revenue and cash flow.

Is There Any Growth For ZCCM Investments Holdings?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 57%. Still, the latest three year period has seen an excellent 157% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that ZCCM Investments Holdings' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

ZCCM Investments Holdings' recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

Our examination of ZCCM Investments Holdings revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider and we've discovered 4 warning signs for ZCCM Investments Holdings (2 are a bit unpleasant!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on ZCCM Investments Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.