CIAK Grupa d.d.'s (ZGSE:CIAK) 47% Price Boost Is Out Of Tune With Earnings

CIAK Grupa d.d. (ZGSE:CIAK) shareholders would be excited to see that the share price has had a great month, posting a 47% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, given close to half the companies in Croatia have price-to-earnings ratios (or "P/E's") below 15x, you may consider CIAK Grupa d.d as a stock to avoid entirely with its 26x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at CIAK Grupa d.d over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for CIAK Grupa 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 CIAK Grupa d.d's earnings, revenue and cash flow.

How Is CIAK Grupa d.d's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as CIAK Grupa d.d's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. The last three years don't look nice either as the company has shrunk EPS by 42% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 29% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's alarming that CIAK Grupa d.d's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From CIAK Grupa d.d's P/E?

The strong share price surge has got CIAK Grupa d.d's P/E rushing to great heights as well. 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 CIAK Grupa d.d revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 3 warning signs for CIAK Grupa d.d (2 are potentially serious!) that you should be aware of before investing here.

You might be able to find a better investment than CIAK Grupa d.d. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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