What ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's (BUSE:EPDUFERR) 31% Share Price Gain Is Not Telling You

ÉPDUFERR Nyilvánosan Muködo Részvénytársaság (BUSE:EPDUFERR) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Since its price has surged higher, ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's price-to-earnings (or "P/E") ratio of 30x might make it look like a strong sell right now compared to the market in Hungary, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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ÉPDUFERR Nyilvánosan Muködo Részvénytársaság certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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.

Check out our latest analysis for ÉPDUFERR Nyilvánosan Muködo Részvénytársaság

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ÉPDUFERR Nyilvánosan Muködo Részvénytársaság will help you shine a light on its historical performance.

How Is ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's Growth Trending?

In order to justify its P/E ratio, ÉPDUFERR Nyilvánosan Muködo Részvénytársaság would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 121%. However, this wasn't enough as the latest three year period has seen a very unpleasant 83% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 18% 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. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On ÉPDUFERR Nyilvánosan Muködo Részvénytársaság's P/E

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. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Having said that, be aware ÉPDUFERR Nyilvánosan Muködo Részvénytársaság is showing 4 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than ÉPDUFERR Nyilvánosan Muködo Részvénytársaság. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.