A Piece Of The Puzzle Missing From Joint Stock Company Kaspi.kz's (LON:KSPI) Share Price

With a price-to-earnings (or "P/E") ratio of 8.3x Joint Stock Company Kaspi.kz (LON:KSPI) may be sending bullish signals at the moment, given that almost half of all companies in the United Kingdom have P/E ratios greater than 14x and even P/E's higher than 28x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Kaspi.kz certainly has been doing a good job lately as it's been growing earnings more 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered an exceptional 51% gain to the company's bottom line. Pleasingly, EPS has also lifted 240% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 27% each year as estimated by the five analysts watching the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Kaspi.kz's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

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.

We've established that Kaspi.kz currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Kaspi.kz (of which 1 is a bit concerning!) you should know about.

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

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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.