Further Upside For Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) Shares Could Introduce Price Risks After 27% Bounce

Despite an already strong run, Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 252% in the last year.

In spite of the firm bounce in price, Koncar - distributivni i specijalni transformatori d.d's price-to-earnings (or "P/E") ratio of 10.9x might still make it look like a buy right now compared to the market in Croatia, where around half of the companies have P/E ratios above 16x and even P/E's above 26x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Koncar - distributivni i specijalni transformatori d.d certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Koncar - distributivni i specijalni transformatori d.d

Although there are no analyst estimates available for Koncar - distributivni i specijalni transformatori d.d, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Koncar - distributivni i specijalni transformatori d.d?

There's an inherent assumption that a company should underperform the market for P/E ratios like Koncar - distributivni i specijalni transformatori d.d's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 74%. The strong recent performance means it was also able to grow EPS by 328% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 0.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Koncar - distributivni i specijalni transformatori d.d's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Koncar - distributivni i specijalni transformatori d.d's P/E

Koncar - distributivni i specijalni transformatori d.d's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Koncar - distributivni i specijalni transformatori d.d currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Koncar - distributivni i specijalni transformatori d.d is showing 1 warning sign in our investment analysis, you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.