Earnings Tell The Story For S.C. Mecon S.A. (BVB:MECP)

With a price-to-earnings (or "P/E") ratio of 32.8x S.C. Mecon S.A. (BVB:MECP) may be sending very bearish signals at the moment, given that almost half of all companies in Romania have P/E ratios under 14x and even P/E's lower than 8x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for S.C. Mecon as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for S.C. Mecon

Although there are no analyst estimates available for S.C. Mecon, 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 High P/E?

S.C. Mecon's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 132% last year. Still, incredibly EPS has fallen 11% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for a contraction of 7.1% shows the market is even less attractive on an annualised basis.

With this information, it might not be hard to see why S.C. Mecon is trading at a higher P/E in comparison. Nonetheless, there's no guarantee the P/E has found a floor yet with recent earnings going backwards, despite the market heading down even harder. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Bottom Line On S.C. Mecon's P/E

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.

We've established that S.C. Mecon maintains its high P/E on the strength of its recentthree-year earnings not being as bad as the forecasts for a struggling market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under any additional threat. We still remain cautious about the company's ability to stay its recent course and resist the broader market turmoil. Although, if the company's relative performance doesn't change it will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for S.C. Mecon 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.