Subdued Growth No Barrier To Ekopol Górnoslaski Holding S.A. (WSE:EGH) With Shares Advancing 27%

The Ekopol Górnoslaski Holding S.A. (WSE:EGH) share price has done very well over the last month, posting an excellent gain of 27%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

Since its price has surged higher, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 12x, you may consider Ekopol Górnoslaski Holding as a stock to avoid entirely with its 29.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For instance, Ekopol Górnoslaski Holding'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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Ekopol Górnoslaski Holding

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 Ekopol Górnoslaski Holding's earnings, revenue and cash flow.

Is There Enough Growth For Ekopol Górnoslaski Holding?

The only time you'd be truly comfortable seeing a P/E as steep as Ekopol Górnoslaski Holding's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 55% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's an unpleasant look.

With this information, we find it concerning that Ekopol Górnoslaski Holding 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 Final Word

The strong share price surge has got Ekopol Górnoslaski Holding's P/E rushing to great heights as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Ekopol Górnoslaski Holding 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. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Ekopol Górnoslaski Holding, and understanding these should be part of your investment process.

If you're unsure about the strength of Ekopol Górnoslaski Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com