Subdued Growth No Barrier To Flour Mills Kepenos S.A. (ATH:KEPEN) With Shares Advancing 26%

Flour Mills Kepenos S.A. (ATH:KEPEN) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 5.8% in the last twelve months.

After such a large jump in price, Flour Mills Kepenos' price-to-earnings (or "P/E") ratio of 15.7x might make it look like a sell right now compared to the market in Greece, where around half of the companies have P/E ratios below 11x and even P/E's below 8x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Flour Mills Kepenos certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Flour Mills Kepenos

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Flour Mills Kepenos' earnings, revenue and cash flow.

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

Flour Mills Kepenos' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 133% gain to the company's bottom line. Still, incredibly EPS has fallen 28% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 4.8% shows it's an unpleasant look.

In light of this, it's alarming that Flour Mills Kepenos' P/E sits above the majority of other companies. 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.

The Key Takeaway

The large bounce in Flour Mills Kepenos' shares has lifted the company's P/E to a fairly high level. 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.

Our examination of Flour Mills Kepenos 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 5 warning signs for Flour Mills Kepenos (2 are a bit concerning!) that you should be aware of before investing here.

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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