CTT - Correios De Portugal, S.A. (ELI:CTT) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

The CTT - Correios De Portugal, S.A. (ELI:CTT) share price has done very well over the last month, posting an excellent gain of 25%. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, it's still not a stretch to say that CTT - Correios De Portugal's price-to-earnings (or "P/E") ratio of 10.4x right now seems quite "middle-of-the-road" compared to the market in Portugal, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

CTT - Correios De Portugal certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for CTT - Correios De Portugal

Keen to find out how analysts think CTT - Correios De Portugal's future stacks up against the industry? In that case, our free report is a great place to start.

How Is CTT - Correios De Portugal's Growth Trending?

CTT - Correios De Portugal's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 74% gain to the company's bottom line. The latest three year period has also seen an excellent 286% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 0.8% per year as estimated by the dual analysts watching the company. With the market predicted to deliver 5.3% growth each year, that's a disappointing outcome.

With this information, we find it concerning that CTT - Correios De Portugal is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Bottom Line On CTT - Correios De Portugal's P/E

CTT - Correios De Portugal appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 CTT - Correios De Portugal currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - CTT - Correios De Portugal has 2 warning signs (and 1 which is concerning) we think 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.

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.