Burger Fuel Group Limited (NZSE:BFG) Might Not Be As Mispriced As It Looks After Plunging 71%

The Burger Fuel Group Limited (NZSE:BFG) share price has fared very poorly over the last month, falling by a substantial 71%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 63% loss during that time.

Even after such a large drop in price, Burger Fuel Group may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4x, since almost half of all companies in New Zealand have P/E ratios greater than 16x and even P/E's higher than 30x 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 exceedingly strong of late, Burger Fuel Group has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 Burger Fuel Group

Although there are no analyst estimates available for Burger Fuel Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Burger Fuel Group's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 48% last year. The latest three year period has also seen an excellent 92% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Burger Fuel Group is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Burger Fuel Group's P/E

Having almost fallen off a cliff, Burger Fuel Group's share price has pulled its P/E way down as well. 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.

We've established that Burger Fuel Group currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Burger Fuel Group you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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.