S.C. Univers S.A.'s (BVB:UNVR) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 36.2x S.C. Univers S.A. (BVB:UNVR) may be sending very bearish signals at the moment, given that almost half of all companies in Romania have P/E ratios under 15x and even P/E's lower than 8x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

As an illustration, earnings have deteriorated at S.C. Univers over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for S.C. Univers

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. Univers' earnings, revenue and cash flow.

How Is S.C. Univers' Growth Trending?

In order to justify its P/E ratio, S.C. Univers would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 12% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to decline by 8.5% over the next year, even worse than the company's recent medium-term annualised earnings decline.

With this information, it might not be hard to see why S.C. Univers is trading at a higher P/E in comparison. However, even if the company's recent growth rates were to continue outperforming the market, shrinking earnings are unlikely to make the P/E premium sustainable over the longer term. There is potential for the P/E to fall to lower levels if the company doesn't improve its profitability, which would be difficult to do with the current market outlook.

What We Can Learn From S.C. Univers' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of S.C. Univers revealed its narrower three-year contraction in earnings is contributing to its high P/E, given the market is set to shrink even more. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under any additional threat. We still remain cautious about the company's ability to stay its recent course and resist the broader market turmoil. Although, if the company's relative performance doesn't change it will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for S.C. Univers (3 don't sit too well with us!) that you need to be mindful of.

Of course, you might also be able to find a better stock than S.C. Univers. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com