Bowler Metcalf Limited (JSE:BCF) Not Lagging Market On Growth Or Pricing

There wouldn't be many who think Bowler Metcalf Limited's (JSE:BCF) price-to-earnings (or "P/E") ratio of 8.4x is worth a mention when the median P/E in South Africa is similar at about 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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The earnings growth achieved at Bowler Metcalf over the last year would be more than acceptable for most companies. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. 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 not quite in favour.

See our latest analysis for Bowler Metcalf

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 Bowler Metcalf's earnings, revenue and cash flow.

How Is Bowler Metcalf's Growth Trending?

The only time you'd be comfortable seeing a P/E like Bowler Metcalf's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. The latest three year period has also seen an excellent 53% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

It's interesting to note that the rest of the market is similarly expected to grow by 17% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Bowler Metcalf's P/E sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Bottom Line On Bowler Metcalf's P/E

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.

We've established that Bowler Metcalf maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Bowler Metcalf that you should be aware of.

If these risks are making you reconsider your opinion on Bowler Metcalf, 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.