Purcari Wineries Public Company Limited's (BVB:WINE) 33% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/E Ratio

The Purcari Wineries Public Company Limited (BVB:WINE) share price has fared very poorly over the last month, falling by a substantial 33%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Purcari Wineries' P/E ratio of 10.7x, since the median price-to-earnings (or "P/E") ratio in Romania is also close to 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Purcari Wineries hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Purcari Wineries

Want the full picture on analyst estimates for the company? Then our free report on Purcari Wineries will help you uncover what's on the horizon.

Is There Some Growth For Purcari Wineries?

There's an inherent assumption that a company should be matching the market for P/E ratios like Purcari Wineries' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 6.4% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 7.5% over the next year. Meanwhile, the broader market is forecast to expand by 3.2%, which paints a poor picture.

With this information, we find it concerning that Purcari Wineries is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Key Takeaway

Purcari Wineries' plummeting stock price has brought its P/E right back to the rest of the market. 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.

Our examination of Purcari Wineries' analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Purcari Wineries that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.