S.C. Transcom S.A. (BVB:TRVM) Surges 29% Yet Its Low P/E Is No Reason For Excitement

S.C. Transcom S.A. (BVB:TRVM) shareholders have had their patience rewarded with a 29% share price jump in the last month. 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.

Although its price has surged higher, S.C. Transcom's price-to-earnings (or "P/E") ratio of 9.7x 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 16x and even P/E's above 49x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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S.C. Transcom certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

View our latest analysis for S.C. Transcom

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How Is S.C. Transcom's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 312% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 17% 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. Transcom'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 Bottom Line On S.C. Transcom's P/E

Despite S.C. Transcom's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that S.C. Transcom 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.

Before you take the next step, you should know about the 4 warning signs for S.C. Transcom (3 make us uncomfortable!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.