The Gambling.com Group Limited (NASDAQ:GAMB) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 39%.

Even after such a large jump in price, Gambling.com Group’s price-to-earnings (or “P/E”) ratio of 16x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E’s above 35x are quite common. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

With earnings growth that’s superior to most other companies of late, Gambling.com Group has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 Gambling.com Group

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Does Growth Match The Low P/E?

In order to justify its P/E ratio, Gambling.com Group would need to produce sluggish growth that’s trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 291% last year. The latest three year period has also seen a 21% overall rise in EPS, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 11% each year as estimated by the seven analysts watching the company. That’s shaping up to be similar to the 11% each year growth forecast for the broader market.

With this information, we find it odd that Gambling.com Group is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Gambling.com Group’s stock might have been given a solid boost, but its P/E certainly hasn’t reached any great heights. Using the price-to-earnings ratio alone to determine if you should sell your stock isn’t sensible, however it can be a practical guide to the company’s future prospects.

Our examination of Gambling.com Group’s analyst forecasts revealed that its market-matching earnings outlook isn’t contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 1 warning sign for Gambling.com Group 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 low P/E.

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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.