Investors Appear Satisfied With Maxipizza SA's (WSE:MXP) Prospects As Shares Rocket 34%

Maxipizza SA (WSE:MXP) shares have had a really impressive month, gaining 34% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, Maxipizza's price-to-earnings (or "P/E") ratio of 16.5x might make it look like a sell right now compared to the market in Poland, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

The recent earnings growth at Maxipizza would have to be considered satisfactory if not spectacular. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Maxipizza

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

Is There Enough Growth For Maxipizza?

In order to justify its P/E ratio, Maxipizza would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a decent 6.0% gain to the company's bottom line. The latest three year period has also seen an excellent 293% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 8.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Maxipizza's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

The large bounce in Maxipizza's shares has lifted the company's P/E to a fairly high level. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Maxipizza revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Maxipizza has 5 warning signs (and 3 which shouldn't be ignored) we think you should know about.

If you're unsure about the strength of Maxipizza'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.