Semapa - Sociedade de Investimento e Gestão, SGPS, S.A.'s (ELI:SEM) Price Is Right But Growth Is Lacking After Shares Rocket 26%

Semapa - Sociedade de Investimento e Gestão, SGPS, S.A. (ELI:SEM) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

Even after such a large jump in price, Semapa - Sociedade de Investimento e Gestão SGPS may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.6x, since almost half of all companies in Portugal have P/E ratios greater than 14x and even P/E's higher than 27x 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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With earnings that are retreating more than the market's of late, Semapa - Sociedade de Investimento e Gestão SGPS has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Semapa - Sociedade de Investimento e Gestão SGPS

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Semapa - Sociedade de Investimento e Gestão SGPS.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Semapa - Sociedade de Investimento e Gestão SGPS would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 34%. As a result, earnings from three years ago have also fallen 44% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 8.1% per year during the coming three years according to the dual analysts following the company. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that Semapa - Sociedade de Investimento e Gestão SGPS' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite Semapa - Sociedade de Investimento e Gestão SGPS' 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.

We've established that Semapa - Sociedade de Investimento e Gestão SGPS maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Semapa - Sociedade de Investimento e Gestão SGPS, and understanding these should be part of your investment process.

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.