Ekobox S.A. (WSE:EBX) Looks Just Right With A 46% Price Jump

Ekobox S.A. (WSE:EBX) shares have had a really impressive month, gaining 46% after a shaky period beforehand. The last month tops off a massive increase of 109% in the last year.

Following the firm bounce in price, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 13x, you may consider Ekobox as a stock to avoid entirely with its 20.1x P/E ratio. 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.

Our free stock report includes 3 warning signs investors should be aware of before investing in Ekobox. Read for free now.

For instance, Ekobox's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Ekobox

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 Ekobox's earnings, revenue and cash flow.

Is There Enough Growth For Ekobox?

Ekobox's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 8.9%. Still, the latest three year period has seen an excellent 683% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why Ekobox is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Ekobox's P/E

The strong share price surge has got Ekobox's P/E rushing to great heights as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Ekobox 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Ekobox, and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Ekobox. 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.