Market Might Still Lack Some Conviction On Archicom S.A. (WSE:ARH) Even After 28% Share Price Boost

Archicom S.A. (WSE:ARH) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 57%.

Although its price has surged higher, there still wouldn't be many who think Archicom's price-to-earnings (or "P/E") ratio of 9.5x is worth a mention when the median P/E in Poland is similar at about 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for Archicom as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Archicom

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Archicom.

How Is Archicom's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Archicom's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 39% gain to the company's bottom line. Still, incredibly EPS has fallen 5.8% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the three analysts watching the company. With the market only predicted to deliver 6.5% per year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Archicom is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Archicom appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

We've established that Archicom currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Archicom (including 2 which make us uncomfortable).

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.