Market Cool On VEON Ltd.'s (NASDAQ:VEON) Earnings
With a price-to-earnings (or "P/E") ratio of 7x VEON Ltd. (NASDAQ:VEON) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 37x are not unusual. 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.
With its earnings growth in positive territory compared to the declining earnings of most other companies, VEON has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, 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.
View our latest analysis for VEON
If you'd like to see what analysts are forecasting going forward, you should check out our free report on VEON.
Does Growth Match The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like VEON's to be considered reasonable.
If we review the last year of earnings growth, the company posted a terrific increase of 149%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 29% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 13% per year, which is noticeably less attractive.
With this information, we find it odd that VEON 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.
What We Can Learn From VEON's 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 VEON currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
You should always think about risks. Case in point, we've spotted 2 warning signs for VEON you should be aware of, and 1 of them shouldn't be ignored.
Of course, you might also be able to find a better stock than VEON. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
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.
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