ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's (BUSE:EPDUFERR) Shares Climb 33% But Its Business Is Yet to Catch Up

ÉPDUFERR Nyilvánosan Muködo Részvénytársaság (BUSE:EPDUFERR) shares have continued their recent momentum with a 33% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 33%.

Since its price has surged higher, given close to half the companies in Hungary have price-to-earnings ratios (or "P/E's") below 11x, you may consider ÉPDUFERR Nyilvánosan Muködo Részvénytársaság as a stock to avoid entirely with its 41.8x 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.

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Recent times have been quite advantageous for ÉPDUFERR Nyilvánosan Muködo Részvénytársaság 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for ÉPDUFERR Nyilvánosan Muködo Részvénytársaság

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

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 116% gain to the company's bottom line. However, this wasn't enough as the latest three year period has seen a very unpleasant 83% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 13% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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

ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's P/E is flying high just like its stock has during the last month. 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.

Our examination of ÉPDUFERR Nyilvánosan Muködo Részvénytársaság revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. 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.

Before you settle on your opinion, we've discovered 4 warning signs for ÉPDUFERR Nyilvánosan Muködo Részvénytársaság (3 are a bit concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on ÉPDUFERR Nyilvánosan Muködo Részvénytársaság, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.