Turism, Hoteluri, Restaurante Marea Neagra S.A. (BVB:EFO) Stock Catapults 36% Though Its Price And Business Still Lag The Market

Turism, Hoteluri, Restaurante Marea Neagra S.A. (BVB:EFO) shareholders have had their patience rewarded with a 36% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 46%.

In spite of the firm bounce in price, Turism Hoteluri Restaurante Marea Neagra may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.7x, since almost half of all companies in Romania have P/E ratios greater than 17x and even P/E's higher than 50x are not unusual. 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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For example, consider that Turism Hoteluri Restaurante Marea Neagra's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Turism Hoteluri Restaurante Marea Neagra

Although there are no analyst estimates available for Turism Hoteluri Restaurante Marea Neagra, 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 Low P/E?

In order to justify its P/E ratio, Turism Hoteluri Restaurante Marea Neagra would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 43%. This means it has also seen a slide in earnings over the longer-term as EPS is down 24% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 30% shows it's an unpleasant look.

In light of this, it's understandable that Turism Hoteluri Restaurante Marea Neagra's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

The latest share price surge wasn't enough to lift Turism Hoteluri Restaurante Marea Neagra's P/E close to the market median. 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.

As we suspected, our examination of Turism Hoteluri Restaurante Marea Neagra revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. 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 5 warning signs we've spotted with Turism Hoteluri Restaurante Marea Neagra.

Of course, you might also be able to find a better stock than Turism Hoteluri Restaurante Marea Neagra. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.