One United Properties SA (BVB:ONE) Surges 32% Yet Its Low P/E Is No Reason For Excitement

One United Properties SA (BVB:ONE) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, One United Properties' price-to-earnings (or "P/E") ratio of 7x might still make it look like a buy right now compared to the market in Romania, where around half of the companies have P/E ratios above 13x and even P/E's above 20x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for One United Properties as its earnings have been rising faster than most other companies. 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 One United Properties

If you'd like to see what analysts are forecasting going forward, you should check out our free report on One United Properties.

Is There Any Growth For One United Properties?

The only time you'd be truly comfortable seeing a P/E as low as One United Properties' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 158%. The latest three year period has also seen an excellent 317% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 24% during the coming year according to the two analysts following the company. With the market predicted to deliver 4.9% growth , that's a disappointing outcome.

In light of this, it's understandable that One United Properties' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On One United Properties' P/E

Despite One United Properties' shares building up a head of steam, its P/E still lags most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of One United Properties' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for One United Properties (2 don't sit too well with us!) that we have uncovered.

Of course, you might also be able to find a better stock than One United Properties. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.