Thessaloniki Water Supply & Sewerage Co S.A.'s (ATH:EYAPS) 29% Share Price Surge Not Quite Adding Up

The Thessaloniki Water Supply & Sewerage Co S.A. (ATH:EYAPS) share price has done very well over the last month, posting an excellent gain of 29%. The last 30 days bring the annual gain to a very sharp 29%.

After such a large jump in price, Thessaloniki Water Supply & Sewerage Co's price-to-earnings (or "P/E") ratio of 26.6x might make it look like a strong sell right now compared to the market in Greece, where around half of the companies have P/E ratios below 15x and even P/E's below 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Recent times have been quite advantageous for Thessaloniki Water Supply & Sewerage Co as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Thessaloniki Water Supply & Sewerage Co

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

Is There Enough Growth For Thessaloniki Water Supply & Sewerage Co?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Thessaloniki Water Supply & Sewerage Co's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 315%. Still, incredibly EPS has fallen 48% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Thessaloniki Water Supply & Sewerage Co 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 Key Takeaway

The strong share price surge has got Thessaloniki Water Supply & Sewerage Co's P/E rushing to great heights as well. 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 Thessaloniki Water Supply & Sewerage Co 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. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 2 warning signs we've spotted with Thessaloniki Water Supply & Sewerage Co (including 1 which doesn't sit too well with us).

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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.