The Price Is Right For S.C. Unirea S.A. (BVB:UNIR)

When close to half the companies in Romania have price-to-earnings ratios (or "P/E's") below 13x, you may consider S.C. Unirea S.A. (BVB:UNIR) as a stock to avoid entirely with its 31.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's exceedingly strong of late, S.C. Unirea has been doing very well. 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.

View our latest analysis for S.C. Unirea

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on S.C. Unirea's earnings, revenue and cash flow.

Is There Enough Growth For S.C. Unirea?

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

If we review the last year of earnings growth, the company posted a terrific increase of 72%. The latest three year period has also seen an excellent 138% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 6.4% shows it's a great look while it lasts.

In light of this, it's understandable that S.C. Unirea's P/E sits above the majority of other companies. Investors are willing to pay more for a stock they hope will buck the trend of the broader market going backwards. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that S.C. Unirea maintains its high P/E on the strength of its recentthree-year growth beating forecasts for a struggling market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. We still remain cautious about the company's ability to stay its recent course and swim against the current of 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with S.C. Unirea (at least 2 which are a bit unpleasant), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on S.C. Unirea, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.