Not Many Are Piling Into S.C. Unirea S.A. (BVB:UNIR) Stock Yet As It Plummets 28%

To the annoyance of some shareholders, S.C. Unirea S.A. (BVB:UNIR) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

Although its price has dipped substantially, S.C. Unirea's price-to-earnings (or "P/E") ratio of 7x might still make it look like a strong buy right now compared to the market in Romania, where around half of the companies have P/E ratios above 16x and even P/E's above 47x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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For instance, S.C. Unirea's 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. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Check out our latest analysis for S.C. Unirea

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

Is There Any Growth For S.C. Unirea?

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

Retrospectively, the last year delivered a frustrating 44% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 248% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 29% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that S.C. Unirea's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Having almost fallen off a cliff, S.C. Unirea's share price has pulled its P/E way down as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that S.C. Unirea currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for S.C. Unirea (1 is concerning) you should be aware of.

If you're unsure about the strength of S.C. Unirea's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.