Marco Polo Marine Ltd.'s (SGX:5LY) Price Is Right But Growth Is Lacking After Shares Rocket 33%

Despite an already strong run, Marco Polo Marine Ltd. (SGX:5LY) shares have been powering on, with a gain of 33% in the last thirty days. The last month tops off a massive increase of 164% in the last year.

In spite of the firm bounce in price, Marco Polo Marine may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9x, since almost half of all companies in Singapore have P/E ratios greater than 15x and even P/E's higher than 26x 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 limited.

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Recent times have been advantageous for Marco Polo Marine 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 Marco Polo Marine

Keen to find out how analysts think Marco Polo Marine's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Marco Polo Marine?

There's an inherent assumption that a company should underperform the market for P/E ratios like Marco Polo Marine's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 170%. The strong recent performance means it was also able to grow EPS by 158% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings growth is heading into negative territory, declining 11% per annum over the next three years. Meanwhile, the broader market is forecast to expand by 9.6% per annum, which paints a poor picture.

In light of this, it's understandable that Marco Polo Marine's 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. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Despite Marco Polo Marine's 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 Marco Polo Marine's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Marco Polo Marine you should know about.

Of course, you might also be able to find a better stock than Marco Polo Marine. 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.