Why Investors Shouldn't Be Surprised By Odfjell SE's (OB:ODF) 25% Share Price Plunge

To the annoyance of some shareholders, Odfjell SE (OB:ODF) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 4.9% in the last year.

Since its price has dipped substantially, Odfjell may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.8x, since almost half of all companies in Norway have P/E ratios greater than 11x 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.

With earnings growth that's superior to most other companies of late, Odfjell has been doing relatively well. 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.

Check out our latest analysis for Odfjell

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

Is There Any Growth For Odfjell?

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

If we review the last year of earnings growth, the company posted a terrific increase of 38%. 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.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 9.0% as estimated by the five analysts watching the company. With the market predicted to deliver 29% growth , that's a disappointing outcome.

With this information, we are not surprised that Odfjell is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Odfjell's P/E?

Odfjell's P/E looks about as weak as its stock price lately. 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 Odfjell maintains its low P/E on the weakness of its forecast for sliding earnings, 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.

Plus, you should also learn about these 3 warning signs we've spotted with Odfjell (including 1 which is concerning).

Of course, you might also be able to find a better stock than Odfjell. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.