Hydraulic Elements and Systems AD (BUL:HES) Shares May Have Slumped 47% But Getting In Cheap Is Still Unlikely

Hydraulic Elements and Systems AD (BUL:HES) shareholders that were waiting for something to happen have been dealt a blow with a 47% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think Hydraulic Elements and Systems AD's price-to-earnings (or "P/E") ratio of 10.1x is worth a mention when the median P/E in Bulgaria is similar at about 11x. 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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With earnings growth that's exceedingly strong of late, Hydraulic Elements and Systems AD has been doing very well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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.

Check out our latest analysis for Hydraulic Elements and Systems AD

Although there are no analyst estimates available for Hydraulic Elements and Systems AD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For Hydraulic Elements and Systems AD?

The only time you'd be comfortable seeing a P/E like Hydraulic Elements and Systems AD's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 31%. Still, incredibly EPS has fallen 53% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 21% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Hydraulic Elements and Systems AD is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate 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 the recent negative growth rates.

What We Can Learn From Hydraulic Elements and Systems AD's P/E?

Following Hydraulic Elements and Systems AD's share price tumble, its P/E is now hanging on to the median market P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Hydraulic Elements and Systems AD currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 4 warning signs for Hydraulic Elements and Systems AD (2 don't sit too well with us!) that you need to take into consideration.

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.