Domiki Kritis S.A.'s (ATH:DOMIK) Price Is Out Of Tune With Earnings

When close to half the companies in Greece have price-to-earnings ratios (or "P/E's") below 11x, you may consider Domiki Kritis S.A. (ATH:DOMIK) as a stock to avoid entirely with its 52x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For example, consider that Domiki Kritis' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Domiki Kritis

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

How Is Domiki Kritis' Growth Trending?

In order to justify its P/E ratio, Domiki Kritis would need to produce outstanding growth well in excess of the market.

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 29%. The last three years don't look nice either as the company has shrunk EPS by 51% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 4.8% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Domiki Kritis is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Domiki Kritis' P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Domiki Kritis revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Domiki Kritis (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

You might be able to find a better investment than Domiki Kritis. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.