Petrol d.d. (LJSE:PETG) Not Flying Under The Radar

With a price-to-earnings (or "P/E") ratio of 12x Petrol d.d. (LJSE:PETG) may be sending bearish signals at the moment, given that almost half of all companies in Slovenia have P/E ratios under 9x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

The earnings growth achieved at Petrol d.d over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Petrol d.d

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 Petrol d.d's earnings, revenue and cash flow.

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Petrol d.d's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. The strong recent performance means it was also able to grow EPS by 145% 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.

Comparing that to the market, which is predicted to shrink 1.4% in the next 12 months, the company's positive momentum based on recent medium-term earnings results is a bright spot for the moment.

In light of this, it's understandable that Petrol d.d's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Bottom Line On Petrol d.d's P/E

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 Petrol d.d maintains its high P/E on the strength of its recentthree-year growth beating forecasts for a struggling market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader market turmoil. Otherwise, it's hard to see the share price falling strongly in the near future if its earnings performance persists.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Petrol d.d with six simple checks will allow you to discover any risks that could be an issue.

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.

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

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.