Baltic Sea Properties AS' (OB:BALT) Share Price Could Signal Some Risk

Published
March 10, 2022
OB:BALT
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It's not a stretch to say that Baltic Sea Properties AS' (OB:BALT) price-to-earnings (or "P/E") ratio of 12.5x right now seems quite "middle-of-the-road" compared to the market in Norway, where the median P/E ratio is around 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Recent times have been quite advantageous for Baltic Sea Properties as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Baltic Sea Properties

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OB:BALT Price Based on Past Earnings March 10th 2022
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Baltic Sea Properties will help you shine a light on its historical performance.

Is There Some Growth For Baltic Sea Properties?

There's an inherent assumption that a company should be matching the market for P/E ratios like Baltic Sea Properties' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 104% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 34% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Baltic Sea Properties' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

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 Baltic Sea Properties revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Baltic Sea Properties (of which 1 is potentially serious!) you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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