Benign Growth For Societatea de Constructii Napoca SA (BVB:NAPO) Underpins Stock's 31% Plummet

To the annoyance of some shareholders, Societatea de Constructii Napoca SA (BVB:NAPO) shares are down a considerable 31% 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 51% loss during that time.

Although its price has dipped substantially, given about half the companies in Romania have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Societatea de Constructii Napoca as an attractive investment with its 10.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Societatea de Constructii Napoca has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Societatea de Constructii Napoca

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Societatea de Constructii Napoca will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

Societatea de Constructii Napoca's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 79% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 6.4% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Societatea de Constructii Napoca's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Societatea de Constructii Napoca's P/E?

Societatea de Constructii Napoca's P/E has taken a tumble along with its share price. 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 Societatea de Constructii Napoca maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Societatea de Constructii Napoca.

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.