Odfjell SE (OB:ODF) Surges 27% Yet Its Low P/E Is No Reason For Excitement

The Odfjell SE (OB:ODF) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days bring the annual gain to a very sharp 67%.

Even after such a large jump in price, Odfjell may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.5x, since almost half of all companies in Norway have P/E ratios greater than 12x and even P/E's higher than 21x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Odfjell 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.

View our latest analysis for Odfjell

Keen to find out how analysts think Odfjell's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Odfjell?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 90% last year. Pleasingly, EPS has also lifted 882% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 12% over the next year. That's shaping up to be materially lower than the 28% growth forecast for the broader market.

In light of this, it's understandable that Odfjell's P/E sits below the majority of other companies. 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

Shares in Odfjell are going to need a lot more upward momentum to get the company's P/E out of its slump. 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.

We've established that Odfjell 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.

You always need to take note of risks, for example - Odfjell has 2 warning signs we think you should be aware of.

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

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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.