Digital Value S.p.A. (BIT:DGV) Soars 59% But It's A Story Of Risk Vs Reward

Digital Value S.p.A. (BIT:DGV) shareholders are no doubt pleased to see that the share price has bounced 59% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 68% share price drop in the last twelve months.

In spite of the firm bounce in price, Digital Value's price-to-earnings (or "P/E") ratio of 4x might still make it look like a strong 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. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Digital Value as its earnings have been rising faster 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.

Check out our latest analysis for Digital Value

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Digital Value.

Is There Any Growth For Digital Value?

The only time you'd be truly comfortable seeing a P/E as depressed as Digital Value's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 58% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 14% each year during the coming three years according to the three analysts following the company. With the market predicted to deliver 14% growth per year, the company is positioned for a comparable earnings result.

With this information, we find it odd that Digital Value is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Digital Value's P/E

Digital Value's recent share price jump still sees its P/E sitting firmly flat on the ground. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Digital Value's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Digital Value.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.