Investors Aren't Buying Belships ASA's (OB:BELCO) Earnings

When close to half the companies in Norway have price-to-earnings ratios (or "P/E's") above 12x, you may consider Belships ASA (OB:BELCO) as an attractive investment with its 8.1x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Belships hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Belships

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Belships' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 38% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 130% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 11% per annum over the next three years. That's shaping up to be materially lower than the 25% per year growth forecast for the broader market.

With this information, we can see why Belships is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Belships' P/E?

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.

We've established that Belships maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Belships that you should be aware of.

If these risks are making you reconsider your opinion on Belships, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.