Nasdaq
华尔街日报Holding Varna AD (BUL:HVAR) Shares May Have Slumped 48% But Getting In Cheap Is Still Unlikely
The Holding Varna AD (BUL:HVAR) share price has fared very poorly over the last month, falling by a substantial 48%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.
In spite of the heavy fall in price, given close to half the companies in Bulgaria have price-to-earnings ratios (or "P/E's") below 11x, you may still consider Holding Varna AD as a stock to avoid entirely with its 17x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Recent times have been quite advantageous for Holding Varna AD as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Holding Varna AD
Does Growth Match The High P/E?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Holding Varna AD's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 362% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 21% shows it's noticeably less attractive on an annualised basis.
In light of this, it's alarming that Holding Varna AD's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
The Key Takeaway
Even after such a strong price drop, Holding Varna AD's P/E still exceeds the rest of the market significantly. 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.
Our examination of Holding Varna AD revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
You should always think about risks. Case in point, we've spotted 3 warning signs for Holding Varna AD you should be aware of, and 2 of them can't be ignored.
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.