Not Many Are Piling Into Bastogi S.p.A. (BIT:B) Just Yet

With a price-to-earnings (or "P/E") ratio of 11.8x Bastogi S.p.A. (BIT:B) may be sending bullish signals at the moment, given that almost half of all companies in Italy have P/E ratios greater than 18x and even P/E's higher than 31x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Bastogi certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Bastogi

Although there are no analyst estimates available for Bastogi, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Bastogi?

There's an inherent assumption that a company should underperform the market for P/E ratios like Bastogi's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 98% last year. The latest three year period has also seen an excellent 196% 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.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Bastogi's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

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 Bastogi currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - Bastogi has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Bastogi's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.