Market Might Still Lack Some Conviction On S.C. Vinalcool Arges S.A. (BVB:VIAG) Even After 67% Share Price Boost

The S.C. Vinalcool Arges S.A. (BVB:VIAG) share price has done very well over the last month, posting an excellent gain of 67%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, S.C. Vinalcool Arges may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.8x, since almost half of all companies in Romania have P/E ratios greater than 15x and even P/E's higher than 38x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

S.C. Vinalcool Arges certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, 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.

See our latest analysis for S.C. Vinalcool Arges

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. Vinalcool Arges' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

S.C. Vinalcool Arges' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered an exceptional 50% gain to the company's bottom line. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 7.1% shows it's a great look while it lasts.

With this information, we find it very odd that S.C. Vinalcool Arges is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

S.C. Vinalcool Arges' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of S.C. Vinalcool Arges revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. We think potential risks might be placing significant pressure on the P/E ratio and share price. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.

It is also worth noting that we have found 3 warning signs for S.C. Vinalcool Arges (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of S.C. Vinalcool Arges' 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.