Market Cool On OT Logistics S.A.'s (WSE:OTS) Earnings Pushing Shares 25% Lower

To the annoyance of some shareholders, OT Logistics S.A. (WSE:OTS) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

After such a large drop in price, OT Logistics' price-to-earnings (or "P/E") ratio of 7.1x might make it look like a buy right now compared to the market in Poland, where around half of the companies have P/E ratios above 12x and even P/E's above 21x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, OT Logistics' receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, 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 OT Logistics

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

Does Growth Match The Low P/E?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 71%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 4,560% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that OT Logistics is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

OT Logistics' recently weak share price has pulled its P/E below most other companies. 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 OT Logistics revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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.

Before you settle on your opinion, we've discovered 4 warning signs for OT Logistics (1 is concerning!) that you should be aware of.

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.

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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.