Losinjska Plovidba Holding d.d.'s (ZGSE:LPLH) Shares Leap 26% Yet They're Still Not Telling The Full Story

Losinjska Plovidba Holding d.d. (ZGSE:LPLH) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 66% in the last year.

Even after such a large jump in price, Losinjska Plovidba Holding d.d's price-to-earnings (or "P/E") ratio of 7.9x might still make it look like a buy right now compared to the market in Croatia, where around half of the companies have P/E ratios above 15x and even P/E's above 23x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Losinjska Plovidba Holding d.d certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 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 out of favour.

Check out our latest analysis for Losinjska Plovidba Holding d.d

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Losinjska Plovidba Holding d.d will help you shine a light on its historical performance.

Is There Any Growth For Losinjska Plovidba Holding d.d?

In order to justify its P/E ratio, Losinjska Plovidba Holding d.d would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 67% last year. Pleasingly, EPS has also lifted 3,493% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 9.2% shows it's a great look while it lasts.

With this information, we find it very odd that Losinjska Plovidba Holding d.d is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Losinjska Plovidba Holding d.d's P/E?

Despite Losinjska Plovidba Holding d.d's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Losinjska Plovidba Holding d.d currently trades on a much lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. We think potential risks might be placing significant pressure on the P/E ratio and share price. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. It appears many are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Losinjska Plovidba Holding d.d (of which 2 can't be ignored!) you should know about.

You might be able to find a better investment than Losinjska Plovidba Holding 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.