OPG Power Ventures Plc (LON:OPG) Shares Fly 28% But Investors Aren't Buying For Growth

OPG Power Ventures Plc (LON:OPG) shareholders have had their patience rewarded with a 28% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

Although its price has surged higher, given about half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may still consider OPG Power Ventures as a highly attractive investment with its 5.7x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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For example, consider that OPG Power Ventures' financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for OPG Power Ventures

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on OPG Power Ventures will help you shine a light on its historical performance.

How Is OPG Power Ventures' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as OPG Power Ventures' is when the company's growth is on track to lag the market decidedly.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 60%. The last three years don't look nice either as the company has shrunk EPS by 30% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 18% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that OPG Power Ventures' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Shares in OPG Power Ventures are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 OPG Power Ventures maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for OPG Power Ventures (1 makes us a bit uncomfortable!) that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.