U.S. markets close in 16 minutes
  • S&P 500

    3,357.43
    +21.96 (+0.66%)
     
  • Dow 30

    27,728.71
    +276.05 (+1.01%)
     
  • Nasdaq

    11,156.99
    +71.74 (+0.65%)
     
  • Russell 2000

    1,502.37
    -2.36 (-0.16%)
     
  • Crude Oil

    39.85
    +0.56 (+1.43%)
     
  • Gold

    1,892.80
    -10.40 (-0.55%)
     
  • Silver

    23.38
    -1.07 (-4.36%)
     
  • EUR/USD

    1.1727
    -0.0018 (-0.15%)
     
  • 10-Yr Bond

    0.6770
    +0.0320 (+4.96%)
     
  • GBP/USD

    1.2912
    +0.0052 (+0.40%)
     
  • USD/JPY

    105.4310
    -0.2240 (-0.21%)
     
  • BTC-USD

    10,728.96
    -115.25 (-1.06%)
     
  • CMC Crypto 200

    230.23
    +8.84 (+3.99%)
     
  • FTSE 100

    5,866.10
    -31.40 (-0.53%)
     
  • Nikkei 225

    23,185.12
    -353.98 (-1.50%)
     

Energy World Corporation Ltd's (ASX:EWC) Subdued P/E Might Signal An Opportunity

Simply Wall St

Energy World Corporation Ltd's (ASX:EWC) price-to-earnings (or "P/E") ratio of 2.2x might make it look like a strong buy right now compared to the market in Australia, where around half of the companies have P/E ratios above 16x and even P/E's above 29x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Energy World certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong 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.

See our latest analysis for Energy World

pe
pe

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Energy World's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Energy World would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 121%. The latest three year period has also seen an excellent 35% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 0.3% shows it's a great look while it lasts.

In light of this, it's quite peculiar that Energy World's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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.

Our examination of Energy World revealed its growing earnings over the medium-term aren't contributing to its P/E anywhere near as much as we would have predicted, given the market is set to shrink. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. At least the risk of a price drop looks to be subdued, but investors think future earnings could see a lot of volatility.

It is also worth noting that we have found 4 warning signs for Energy World (2 are significant!) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.