Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) Soars 25% But It's A Story Of Risk Vs Reward

Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) shares have continued their recent momentum with a 25% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 81%.

Although its price has surged higher, there still wouldn't be many who think Loma Negra Compañía Industrial Argentina Sociedad Anónima's price-to-earnings (or "P/E") ratio of 17.1x is worth a mention when the median P/E in the United States is similar at about 19x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Loma Negra Compañía Industrial Argentina Sociedad Anónima has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

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Is There Some Growth For Loma Negra Compañía Industrial Argentina Sociedad Anónima?

In order to justify its P/E ratio, Loma Negra Compañía Industrial Argentina Sociedad Anónima would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a terrific increase of 23%. Pleasingly, EPS has also lifted 556% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 22% each year over the next three years. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

In light of this, it's curious that Loma Negra Compañía Industrial Argentina Sociedad Anónima's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Loma Negra Compañía Industrial Argentina Sociedad Anónima's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Loma Negra Compañía Industrial Argentina Sociedad Anónima currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Loma Negra Compañía Industrial Argentina Sociedad Anónima, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Loma Negra Compañía Industrial Argentina Sociedad Anónima, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.