What KONCAR - Elektroindustrija d.d.'s (ZGSE:KOEI) 26% Share Price Gain Is Not Telling You

KONCAR - Elektroindustrija d.d. (ZGSE:KOEI) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 102% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think KONCAR - Elektroindustrija d.d's price-to-earnings (or "P/E") ratio of 14.4x is worth a mention when the median P/E in Croatia is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

KONCAR - Elektroindustrija d.d certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for KONCAR - Elektroindustrija d.d

If you'd like to see what analysts are forecasting going forward, you should check out our free report on KONCAR - Elektroindustrija d.d.

Is There Some Growth For KONCAR - Elektroindustrija d.d?

The only time you'd be comfortable seeing a P/E like KONCAR - Elektroindustrija d.d's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company grew earnings per share by an impressive 35% last year. The latest three year period has also seen an excellent 376% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 14% during the coming year according to the dual analysts following the company. Meanwhile, the broader market is forecast to expand by 0.8%, which paints a poor picture.

In light of this, it's somewhat alarming that KONCAR - Elektroindustrija d.d's P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Final Word

KONCAR - Elektroindustrija d.d appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that KONCAR - Elektroindustrija d.d currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for KONCAR - Elektroindustrija d.d that we have uncovered.

You might be able to find a better investment than KONCAR - Elektroindustrija 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.