Even With A 28% Surge, Cautious Investors Are Not Rewarding Dekpol S.A.'s (WSE:DEK) Performance Completely

The Dekpol S.A. (WSE:DEK) share price has done very well over the last month, posting an excellent gain of 28%. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, given about half the companies in Poland have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Dekpol as a highly attractive investment with its 5.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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The recent earnings growth at Dekpol would have to be considered satisfactory if not spectacular. It might be that many expect the respectable earnings performance to degrade, which has repressed the P/E. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

View our latest analysis for Dekpol

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Dekpol's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Dekpol would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered a decent 2.8% gain to the company's bottom line. The latest three year period has also seen an excellent 106% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Dekpol's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Dekpol's P/E?

Even after such a strong price move, Dekpol's P/E still trails the rest of the market significantly. 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 Dekpol currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Plus, you should also learn about this 1 warning sign we've spotted with Dekpol.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.