Market Might Still Lack Some Conviction On Generalfinance S.p.A. (BIT:GF) Even After 25% Share Price Boost

Despite an already strong run, Generalfinance S.p.A. (BIT:GF) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 61%.

Although its price has surged higher, given about half the companies in Italy have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Generalfinance as an attractive investment with its 11.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Generalfinance certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Generalfinance

Want the full picture on analyst estimates for the company? Then our free report on Generalfinance will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

Generalfinance's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 37%. Pleasingly, EPS has also lifted 48% 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.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 19% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 14% per year, which is noticeably less attractive.

In light of this, it's peculiar that Generalfinance's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Generalfinance's P/E

The latest share price surge wasn't enough to lift Generalfinance's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Generalfinance currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Generalfinance you should be aware of.

You might be able to find a better investment than Generalfinance. 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.