There's No Escaping S.C. Bucur Obor S.A.'s (BVB:BUCU) Muted Earnings Despite A 33% Share Price Rise

Those holding S.C. Bucur Obor S.A. (BVB:BUCU) shares would be relieved that the share price has rebounded 33% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 77% share price decline over the last year.

Even after such a large jump in price, S.C. Bucur Obor's price-to-earnings (or "P/E") ratio of 2.9x might still make it look like a strong buy right now compared to the market in Romania, where around half of the companies have P/E ratios above 16x and even P/E's above 48x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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For example, consider that S.C. Bucur Obor's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, 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. Bucur Obor

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Is There Any Growth For S.C. Bucur Obor?

In order to justify its P/E ratio, S.C. Bucur Obor would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 29% 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 Key Takeaway

Even after such a strong price move, S.C. Bucur Obor's P/E still trails the rest of the market significantly. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that S.C. Bucur Obor maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for S.C. Bucur Obor that you need to take into consideration.

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.