Zagrebacke Pekarne Klara d.d. (ZGSE:ZPKL) Held Back By Insufficient Growth Even After Shares Climb 42%

Zagrebacke Pekarne Klara d.d. (ZGSE:ZPKL) shareholders would be excited to see that the share price has had a great month, posting a 42% gain and recovering from prior weakness. The last month tops off a massive increase of 146% in the last year.

Although its price has surged higher, Zagrebacke Pekarne Klara d.d may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4x, since almost half of all companies in Croatia have P/E ratios greater than 16x and even P/E's higher than 22x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With earnings growth that's exceedingly strong of late, Zagrebacke Pekarne Klara d.d has been doing very well. 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.

Check out our latest analysis for Zagrebacke Pekarne Klara d.d

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Zagrebacke Pekarne Klara d.d's earnings, revenue and cash flow.

How Is Zagrebacke Pekarne Klara d.d's Growth Trending?

Zagrebacke Pekarne Klara d.d's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 8.3% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Zagrebacke Pekarne Klara d.d's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zagrebacke Pekarne Klara d.d's P/E

Zagrebacke Pekarne Klara d.d's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of Zagrebacke Pekarne Klara d.d revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Zagrebacke Pekarne Klara d.d (1 can't be ignored!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.