Braemar Shipping Services Plc's (LON:BMS) Shares Bounce 28% But Its Business Still Trails The Market

The Braemar Shipping Services Plc (LON:BMS) share price has done very well over the last month, posting an excellent gain of 28%. The last month tops off a massive increase of 130% in the last year.

Although its price has surged higher, Braemar Shipping Services may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.7x, since almost half of all companies in the United Kingdom have P/E ratios greater than 26x and even P/E's higher than 48x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Braemar Shipping Services has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 Braemar Shipping Services

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Braemar Shipping Services would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 53% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to slump, contracting by 1.8% per year during the coming three years according to the only analyst following the company. With the market predicted to deliver 18% growth per annum, that's a disappointing outcome.

With this information, we are not surprised that Braemar Shipping Services is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Even after such a strong price move, Braemar Shipping Services' 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.

We've established that Braemar Shipping Services maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Braemar Shipping Services that we have uncovered.

Of course, you might also be able to find a better stock than Braemar Shipping Services. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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This article by Simply Wall St is general in nature. 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.
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