Some Shareholders Feeling Restless Over Mermeren Kombinat AD's (ATH:MERKO) P/E Ratio

When close to half the companies in Greece have price-to-earnings ratios (or "P/E's") below 12x, you may consider Mermeren Kombinat AD (ATH:MERKO) as a stock to potentially avoid with its 15.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

For instance, Mermeren Kombinat AD's receding earnings in recent times would have to be some food for thought. 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Mermeren Kombinat AD

Although there are no analyst estimates available for Mermeren Kombinat AD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Mermeren Kombinat AD's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Mermeren Kombinat AD's 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 6.0%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 5.3% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 8.8% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Mermeren Kombinat AD is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 Final Word

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 Mermeren Kombinat AD revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware Mermeren Kombinat AD is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Mermeren Kombinat AD. 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.