Awilco LNG ASA (OB:ALNG) Stock Catapults 70% Though Its Price And Business Still Lag The Market

Awilco LNG ASA (OB:ALNG) shareholders have had their patience rewarded with a 70% share price jump in the last month. The annual gain comes to 261% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Awilco LNG's price-to-earnings (or "P/E") ratio of 11.2x might still make it look like a buy right now compared to the market in Norway, where around half of the companies have P/E ratios above 15x and even P/E's above 26x 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.

Recent times have been advantageous for Awilco LNG 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 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 Awilco LNG

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Awilco LNG would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 381%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the one analyst covering the company suggest earnings should grow by 9.2% each year over the next three years. That's shaping up to be materially lower than the 24% each year growth forecast for the broader market.

With this information, we can see why Awilco LNG is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Awilco LNG's shares building up a head of steam, its P/E still lags most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Awilco LNG's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Awilco LNG (1 is significant!) that you need to be mindful of.

You might be able to find a better investment than Awilco LNG. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (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.
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