Investors Aren't Buying SNGN Romgaz SA's (BVB:SNG) Earnings

With a price-to-earnings (or "P/E") ratio of 7.7x SNGN Romgaz SA (BVB:SNG) may be sending bullish signals at the moment, given that almost half of all companies in Romania have P/E ratios greater than 12x and even P/E's higher than 17x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, SNGN Romgaz's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for SNGN Romgaz

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Is There Any Growth For SNGN Romgaz?

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

Retrospectively, the last year delivered a frustrating 18% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 199% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 8.7% per year over the next three years. With the market predicted to deliver 2.1% growth per year, that's a disappointing outcome.

In light of this, it's understandable that SNGN Romgaz'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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On SNGN Romgaz's P/E

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 SNGN Romgaz maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for SNGN Romgaz (1 is a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on SNGN Romgaz, 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.