Lacklustre Performance Is Driving Reworld Media Société Anonyme's (EPA:ALREW) 29% Price Drop

The Reworld Media Société Anonyme (EPA:ALREW) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 49% in that time.

Even after such a large drop in price, Reworld Media Société Anonyme's price-to-earnings (or "P/E") ratio of 3.1x might still make it look like a strong buy right now compared to the market in France, where around half of the companies have P/E ratios above 16x and even P/E's above 28x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Reworld Media Société Anonyme as its earnings have been falling quicker than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

See our latest analysis for Reworld Media Société Anonyme

Want the full picture on analyst estimates for the company? Then our free report on Reworld Media Société Anonyme will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Reworld Media Société Anonyme would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 20% 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 201% 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.

Turning to the outlook, the next three years should generate growth of 4.2% per year as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 13% each year, which is noticeably more attractive.

In light of this, it's understandable that Reworld Media Société Anonyme's P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Shares in Reworld Media Société Anonyme have plummeted and its P/E is now low enough to touch the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Reworld Media Société Anonyme's analyst forecasts revealed that its inferior earnings outlook 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Reworld Media Société Anonyme (1 shouldn't be ignored) you should be aware of.

If you're unsure about the strength of Reworld Media Société Anonyme's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.

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