When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 20x, you may consider Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) as an attractive investment with its 10.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
With earnings growth that's superior to most other companies of late, Loma Negra Compañía Industrial Argentina Sociedad Anónima has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.NYSE:LOMA Price Based on Past Earnings June 15th 2021 free report on Loma Negra Compañía Industrial Argentina Sociedad Anónima
What Are Growth Metrics Telling Us About The Low P/E?
Loma Negra Compañía Industrial Argentina Sociedad Anónima's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
Retrospectively, the last year delivered an exceptional 119% gain to the company's bottom line. Pleasingly, EPS has also lifted 96% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 18% per annum over the next three years. With the market only predicted to deliver 14% per year, the company is positioned for a stronger earnings result.
With this information, we find it odd that Loma Negra Compañía Industrial Argentina Sociedad Anónima is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Final Word
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Our examination of Loma Negra Compañía Industrial Argentina Sociedad Anónima's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Loma Negra Compañía Industrial Argentina Sociedad Anónima you should know about.
If you're unsure about the strength of Loma Negra Compañía Industrial Argentina Sociedad Anónima's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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