Potential Upside For Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) Not Without Risk

With a price-to-earnings (or "P/E") ratio of 9.4x Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) may be sending bullish signals at the moment, given that almost half of all companies in Croatia have P/E ratios greater than 15x and even P/E's higher than 24x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been quite advantageous for Koncar - distributivni i specijalni transformatori d.d 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View 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?

In order to justify its P/E ratio, Koncar - distributivni i specijalni transformatori d.d would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 133% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 785% 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 19% 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. It looks like most investors are not convinced the company can maintain its recent growth rates.

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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Koncar - distributivni i specijalni transformatori d.d revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. 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. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Koncar - distributivni i specijalni transformatori d.d with six simple checks.

You might be able to find a better investment than Koncar - distributivni i specijalni transformatori d.d. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.