Kupiec S.A.'s (WSE:KPC) Price Is Out Of Tune With Earnings

When close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 12x, you may consider Kupiec S.A. (WSE:KPC) as a stock to avoid entirely with its 21.3x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Kupiec has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Kupiec

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

How Is Kupiec's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Kupiec's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 180% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 74% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 6.4% shows it's an unpleasant look.

With this information, we find it concerning that Kupiec is trading at a P/E higher than 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

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.

We've established that Kupiec currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Kupiec (2 shouldn't be ignored!) that you should be aware of before investing here.

You might be able to find a better investment than Kupiec. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.