Nasdaq
華爾街日報Putprop Limited (JSE:PPR) Stock Catapults 47% Though Its Price And Business Still Lag The Market
Putprop Limited (JSE:PPR) shareholders would be excited to see that the share price has had a great month, posting a 47% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 51%.
Even after such a large jump in price, Putprop may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.3x, since almost half of all companies in South Africa have P/E ratios greater than 10x and even P/E's higher than 15x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
Putprop has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform 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 out of favour.
View our latest analysis for Putprop
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as depressed as Putprop's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 30%. However, this wasn't enough as the latest three year period has seen a very unpleasant 21% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
In contrast to the company, the rest of the market is expected to grow by 17% over the next year, which really puts the company's recent medium-term earnings decline into perspective.
In light of this, it's understandable that Putprop's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.
What We Can Learn From Putprop's P/E?
Putprop's recent share price jump still sees its P/E sitting firmly flat on the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Putprop revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. 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.
You need to take note of risks, for example - Putprop has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about.
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.