Digital Value S.p.A.'s (BIT:DGV) Price Is Right But Growth Is Lacking After Shares Rocket 53%

Digital Value S.p.A. (BIT:DGV) shareholders would be excited to see that the share price has had a great month, posting a 53% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 63% share price drop in the last twelve months.

Although its price has surged higher, Digital Value may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7x, since almost half of all companies in Italy have P/E ratios greater than 16x and even P/E's higher than 27x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 3 warning signs investors should be aware of before investing in Digital Value. Read for free now.

The earnings growth achieved at Digital Value over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. 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 Digital Value

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Digital Value will help you shine a light on its historical performance.

How Is Digital Value's Growth Trending?

In order to justify its P/E ratio, Digital Value would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. As a result, it also grew EPS by 13% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Digital Value's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Digital Value's P/E?

Even after such a strong price move, Digital Value's P/E still trails the rest of the market significantly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Digital Value revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for Digital Value (2 shouldn't be ignored!) that you need to take into consideration.

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.