Investors Don't See Light At End Of HELLENiQ ENERGY Holdings S.A.'s (ATH:ELPE) Tunnel

HELLENiQ ENERGY Holdings S.A.'s (ATH:ELPE) price-to-earnings (or "P/E") ratio of 5.3x might make it look like a strong buy right now compared to the market in Greece, where around half of the companies have P/E ratios above 13x and even P/E's above 25x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

HELLENiQ ENERGY Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still 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.

View our latest analysis for HELLENiQ ENERGY Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on HELLENiQ ENERGY Holdings.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like HELLENiQ ENERGY Holdings' to be considered reasonable.

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 46%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 30% per year over the next three years. That's not great when the rest of the market is expected to grow by 7.6% each year.

In light of this, it's understandable that HELLENiQ ENERGY Holdings' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that HELLENiQ ENERGY Holdings maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware HELLENiQ ENERGY Holdings is showing 4 warning signs in our investment analysis, and 1 of those is concerning.

Of course, you might also be able to find a better stock than HELLENiQ ENERGY Holdings. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.