Some Confidence Is Lacking In Societatea Comerciala Compania Hoteliera Intercontinental Romania S.A.'s (BVB:RCHI) P/E

With a price-to-earnings (or "P/E") ratio of 38.9x Societatea Comerciala Compania Hoteliera Intercontinental Romania S.A. (BVB:RCHI) may be sending very bearish signals at the moment, given that almost half of all companies in Romania have P/E ratios under 14x and even P/E's lower than 8x are not unusual. 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.

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We'd have to say that with no tangible growth over the last year, Societatea Comerciala Compania Hoteliera Intercontinental Romania's earnings have been unimpressive. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Societatea Comerciala Compania Hoteliera Intercontinental Romania

Although there are no analyst estimates available for Societatea Comerciala Compania Hoteliera Intercontinental Romania, 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 High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Societatea Comerciala Compania Hoteliera Intercontinental Romania's to be considered reasonable.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 4.9% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 20% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Societatea Comerciala Compania Hoteliera Intercontinental Romania's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Societatea Comerciala Compania Hoteliera Intercontinental Romania's P/E

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 Societatea Comerciala Compania Hoteliera Intercontinental Romania currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Societatea Comerciala Compania Hoteliera Intercontinental Romania (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of Societatea Comerciala Compania Hoteliera Intercontinental Romania'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.