NOS, S.G.P.S., S.A.'s (ELI:NOS) Earnings Are Not Doing Enough For Some Investors

NOS, S.G.P.S., S.A.'s (ELI:NOS) price-to-earnings (or "P/E") ratio of 6.6x might make it look like a buy right now compared to the market in Portugal, where around half of the companies have P/E ratios above 12x and even P/E's above 22x 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.

Recent times have been advantageous for NOS S.G.P.S as its earnings have been rising faster than most other companies. 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.

See our latest analysis for NOS S.G.P.S

Want the full picture on analyst estimates for the company? Then our free report on NOS S.G.P.S will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, NOS S.G.P.S would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 61%. The strong recent performance means it was also able to grow EPS by 102% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings growth is heading into negative territory, declining 17% per annum over the next three years. That's not great when the rest of the market is expected to grow by 2.7% per annum.

With this information, we are not surprised that NOS S.G.P.S 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.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of NOS S.G.P.S' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 4 warning signs for NOS S.G.P.S (of which 1 is concerning!) you should know about.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.