DBA Group S.p.A.'s (BIT:DBA) price-to-earnings (or "P/E") ratio of 10.2x might make it look like a buy right now compared to the market in Italy, where around half of the companies have P/E ratios above 14x and even P/E's above 23x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
DBA Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still 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 DBA Group
How Is DBA Group's Growth Trending?
In order to justify its P/E ratio, DBA Group would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 9.8%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 29% per annum as estimated by the sole analyst watching the company. With the market only predicted to deliver 14% per annum, the company is positioned for a stronger earnings result.
With this information, we find it odd that DBA Group is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
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.
Our examination of DBA Group's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Before you take the next step, you should know about the 2 warning signs for DBA Group that we have uncovered.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
About BIT:DBA
DBA Group
Provides consultancy, architecture, engineering, and project management services.
Excellent balance sheet and good value.
