There's No Escaping Caspian Sunrise plc's (LON:CASP) Muted Earnings Despite A 54% Share Price Rise

Caspian Sunrise plc (LON:CASP) shares have continued their recent momentum with a 54% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 30%.

In spite of the firm bounce in price, Caspian Sunrise's price-to-earnings (or "P/E") ratio of 13.7x might still make it look like a buy right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios above 17x and even P/E's above 31x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Caspian Sunrise has been doing a decent job lately as it's been growing earnings at a reasonable pace. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

View our latest analysis for Caspian Sunrise

Although there are no analyst estimates available for Caspian Sunrise, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Caspian Sunrise?

In order to justify its P/E ratio, Caspian Sunrise would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a worthy increase of 7.1%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Caspian Sunrise is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

The latest share price surge wasn't enough to lift Caspian Sunrise's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Caspian Sunrise maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Caspian Sunrise (at least 2 which can't be ignored), and understanding these should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.

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