Positive Sentiment Still Eludes SoftBlue SA (WSE:SBE) Following 28% Share Price Slump

SoftBlue SA (WSE:SBE) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 69% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about SoftBlue's P/E ratio of 13.3x, since the median price-to-earnings (or "P/E") ratio in Poland is also close to 13x. 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.

For example, consider that SoftBlue's financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for SoftBlue

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

Is There Some Growth For SoftBlue?

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

Retrospectively, the last year delivered a frustrating 55% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 751% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

In contrast to the company, the rest of the market is expected to decline by 0.6% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's peculiar that SoftBlue's P/E sits in line with the majority of other companies. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader market.

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

With its share price falling into a hole, the P/E for SoftBlue looks quite average now. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of SoftBlue revealed its growing earnings over the medium-term aren't contributing to its P/E as much as we would have predicted, given the market is set to shrink. When we see its superior earnings with some actual growth, we assume potential risks are what might be placing pressure on the P/E ratio. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader market turmoil. It appears some are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 5 warning signs for SoftBlue (2 shouldn't be ignored!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than SoftBlue. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.