The Market Doesn't Like What It Sees From Hafnia Limited's (OB:HAFNI) Earnings Yet As Shares Tumble 25%

Hafnia Limited (OB:HAFNI) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 40% in that time.

Even after such a large drop in price, given about half the companies in Norway have price-to-earnings ratios (or "P/E's") above 12x, you may still consider Hafnia as a highly attractive investment with its 2.6x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Hafnia could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. 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.

View our latest analysis for Hafnia

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

What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered a frustrating 3.4% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 14% per annum during the coming three years according to the four analysts following the company. That's not great when the rest of the market is expected to grow by 15% each year.

In light of this, it's understandable that Hafnia's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Hafnia's P/E

Hafnia's P/E looks about as weak as its stock price lately. 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.

As we suspected, our examination of Hafnia's analyst forecasts revealed that its outlook for shrinking earnings 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 2 warning signs for Hafnia (1 is a bit concerning!) that you need to be mindful of.

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.