The Market Doesn't Like What It Sees From S.C. Bucur Obor S.A.'s (BVB:BUCU) Earnings Yet As Shares Tumble 85%

The S.C. Bucur Obor S.A. (BVB:BUCU) share price has fared very poorly over the last month, falling by a substantial 85%. For any long-term shareholders, the last month ends a year to forget by locking in a 84% share price decline.

Following the heavy fall in price, S.C. Bucur Obor may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2x, since almost half of all companies in Romania have P/E ratios greater than 17x and even P/E's higher than 51x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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As an illustration, earnings have deteriorated at S.C. Bucur Obor over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for S.C. Bucur Obor

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on S.C. Bucur Obor will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The Low P/E?

S.C. Bucur Obor's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 10%. Still, the latest three year period has seen an excellent 35% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that S.C. Bucur Obor's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Having almost fallen off a cliff, S.C. Bucur Obor's share price has pulled its P/E way down as well. 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.

As we suspected, our examination of S.C. Bucur Obor revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. 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 2 warning signs we've spotted with S.C. Bucur Obor.

If these risks are making you reconsider your opinion on S.C. Bucur Obor, 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.