There's No Escaping Alumil Aluminium Industry S.A.'s (ATH:ALMY) Muted Earnings Despite A 26% Share Price Rise

Alumil Aluminium Industry S.A. (ATH:ALMY) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The annual gain comes to 163% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Alumil Aluminium Industry's price-to-earnings (or "P/E") ratio of 6.8x might still 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 15x and even P/E's above 27x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Alumil Aluminium Industry as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Alumil Aluminium Industry

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 Alumil Aluminium Industry's earnings, revenue and cash flow.

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

In order to justify its P/E ratio, Alumil Aluminium Industry would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 412%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 22% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Alumil Aluminium Industry's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Alumil Aluminium Industry's P/E

Shares in Alumil Aluminium Industry are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Alumil Aluminium Industry revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Alumil Aluminium Industry (including 1 which is a bit concerning).

Of course, you might also be able to find a better stock than Alumil Aluminium Industry. 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.

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.

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