Krynica Vitamin S.A. (WSE:KVT) Not Flying Under The Radar

With a price-to-earnings (or “P/E”) ratio of 16.7x Krynica Vitamin S.A. (WSE:KVT) may be sending bearish signals at the moment, given that almost half of all companies in Poland have P/E ratios under 12x and even P/E’s lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it’s justified.

With earnings growth that’s exceedingly strong of late, Krynica Vitamin 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. You’d really hope so, otherwise you’re paying a pretty hefty price for no particular reason.

View our latest analysis for Krynica Vitamin

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WSE:KVT Price Based on Past Earnings September 15th 2020
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Krynica Vitamin will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The High P/E?

There’s an inherent assumption that a company should outperform the market for P/E ratios like Krynica Vitamin’s to be considered reasonable.

Retrospectively, the last year delivered an exceptional 88% gain to the company’s bottom line. Pleasingly, EPS has also lifted 565% 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.

Weighing that recent medium-term earnings trajectory against the broader market’s one-year forecast for expansion of 4.6% shows it’s noticeably more attractive on an annualised basis.

In light of this, it’s understandable that Krynica Vitamin’s P/E sits above the majority of other companies. Presumably shareholders aren’t keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Krynica Vitamin’s P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We’ve established that Krynica Vitamin maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn’t great enough to justify a lower P/E ratio. If recent medium-term earnings trends continue, it’s hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example – Krynica Vitamin has 5 warning signs (and 1 which is a bit concerning) we think you should know about.

You might be able to find a better investment than Krynica Vitamin. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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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