Alimentara SA Slatina's (BVB:ALRV) 30% Dip In Price Shows Sentiment Is Matching Earnings

To the annoyance of some shareholders, Alimentara SA Slatina (BVB:ALRV) shares are down a considerable 30% in the last month, which continues a horrid run for the company. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Even after such a large drop in price, Alimentara SA Slatina's price-to-earnings (or "P/E") ratio of 12.1x might still make it look like a buy right now compared to the market in Romania, where around half of the companies have P/E ratios above 15x and even P/E's above 34x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

As an illustration, earnings have deteriorated at Alimentara SA Slatina over the last year, which is not ideal at all. 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 Alimentara SA Slatina

Although there are no analyst estimates available for Alimentara SA Slatina, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Alimentara SA Slatina would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 9.5% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

This is in contrast to the rest of the market, which is expected to grow by 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Alimentara SA Slatina'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.

The Key Takeaway

Alimentara SA Slatina's recently weak share price has pulled its P/E below most other companies. 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.

As we suspected, our examination of Alimentara SA Slatina revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. 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.

It is also worth noting that we have found 5 warning signs for Alimentara SA Slatina (3 are potentially serious!) that you need to take into consideration.

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.

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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.