Il Sole 24 ORE S.p.A. (BIT:S24) Surges 62% Yet Its Low P/E Is No Reason For Excitement

Il Sole 24 ORE S.p.A. (BIT:S24) shares have continued their recent momentum with a 62% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 69%.

Although its price has surged higher, given about half the companies in Italy have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Il Sole 24 ORE as an attractive investment with its 7.7x 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.

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Il Sole 24 ORE has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable 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.

See our latest analysis for Il Sole 24 ORE

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 Il Sole 24 ORE's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Il Sole 24 ORE's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the market, which is predicted to deliver 19% 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 Il Sole 24 ORE'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 Key Takeaway

The latest share price surge wasn't enough to lift Il Sole 24 ORE's P/E close to the market median. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Il Sole 24 ORE 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Il Sole 24 ORE (at least 1 which can't be ignored), and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Il Sole 24 ORE. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.