S.N.T.G.N. Transgaz S.A.'s (BVB:TGN) price-to-earnings (or "P/E") ratio of 13.4x might 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 44x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, S.N.T.G.N. Transgaz has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.
Check out our latest analysis for S.N.T.G.N. Transgaz
What Are Growth Metrics Telling Us About The Low P/E?
S.N.T.G.N. Transgaz's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 44% last year. The latest three year period has also seen an excellent 154% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 16% per year during the coming three years according to the one analyst following the company. That's shaping up to be materially higher than the 1.8% each year growth forecast for the broader market.
With this information, we find it odd that S.N.T.G.N. Transgaz is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What We Can Learn From S.N.T.G.N. Transgaz's P/E?
Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that S.N.T.G.N. Transgaz currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for S.N.T.G.N. Transgaz with six simple checks.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
About BVB:TGN
S.N.T.G.N. Transgaz
Engages in the transmission of natural gas in Romania and internationally.
Adequate balance sheet with questionable track record.
