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

KONCAR - Elektroindustrija d.d. (ZGSE:KOEI) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 80%.

Even after such a large jump in price, it's still not a stretch to say that KONCAR - Elektroindustrija d.d's price-to-earnings (or "P/E") ratio of 15.1x right now seems quite "middle-of-the-road" compared to the market in Croatia, where the median P/E ratio is around 16x. 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.

Recent times have been advantageous for KONCAR - Elektroindustrija d.d as its earnings have been rising faster 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.

Check out our latest analysis for KONCAR - Elektroindustrija d.d

Keen to find out how analysts think KONCAR - Elektroindustrija d.d's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like KONCAR - Elektroindustrija d.d's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 88% gain to the company's bottom line. The latest three year period has also seen an excellent 267% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 4.2% each year over the next three years. That's not great when the rest of the market is expected to grow by 15% per annum.

With this information, we find it concerning that KONCAR - Elektroindustrija d.d is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

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. 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.

Our examination of KONCAR - Elektroindustrija d.d's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for KONCAR - Elektroindustrija d.d that you should be aware of.

If these risks are making you reconsider your opinion on KONCAR - Elektroindustrija d.d, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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