ASA International Group PLC's (LON:ASAI) Shares Leap 29% Yet They're Still Not Telling The Full Story

ASA International Group PLC (LON:ASAI) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 55%.

Even after such a large jump in price, ASA International Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.4x, since almost half of all companies in the United Kingdom have P/E ratios greater than 16x and even P/E's higher than 29x are not unusual. 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.

Recent times have been advantageous for ASA International 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 ASA International Group

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

Is There Any Growth For ASA International Group?

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

If we review the last year of earnings growth, the company posted a terrific increase of 121%. The latest three year period has also seen an excellent 428% 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.

Looking ahead now, EPS is anticipated to climb by 27% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 14% each year, which is noticeably less attractive.

With this information, we find it odd that ASA International Group is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Even after such a strong price move, ASA International Group's P/E still trails the rest of the market significantly. 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 ASA International Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with ASA International Group (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on ASA International Group, 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.