Eidesvik Offshore ASA (OB:EIOF) Held Back By Insufficient Growth Even After Shares Climb 26%

Despite an already strong run, Eidesvik Offshore ASA (OB:EIOF) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

In spite of the firm bounce in price, Eidesvik Offshore may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.6x, since almost half of all companies in Norway have P/E ratios greater than 12x and even P/E's higher than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Eidesvik Offshore certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong 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 Eidesvik Offshore

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

Is There Any Growth For Eidesvik Offshore?

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

Retrospectively, the last year delivered an exceptional 35% 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.

This is in contrast to the rest of the market, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Eidesvik Offshore is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Eidesvik Offshore's recent share price jump still sees its P/E sitting firmly flat on the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Eidesvik Offshore maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Eidesvik Offshore 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com