Further Upside For Wise Energy S.A. (WSE:FMG) Shares Could Introduce Price Risks After 29% Bounce

Wise Energy S.A. (WSE:FMG) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 9.2% isn't as attractive.

In spite of the firm bounce in price, given about half the companies in Poland have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Wise Energy as a highly attractive investment with its 3x 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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Recent times have been quite advantageous for Wise Energy as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Wise Energy

Although there are no analyst estimates available for Wise Energy, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Wise Energy's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Wise Energy's is when the company's growth is on track to lag the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 89%. The latest three year period has also seen an excellent 284% overall rise in EPS, aided 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.

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 find it odd that Wise Energy is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Wise Energy's P/E?

Shares in Wise Energy are going to need a lot more upward momentum to get the company's P/E out of its slump. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Wise Energy revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 5 warning signs for Wise Energy (2 are significant!) that you should be aware of.

If you're unsure about the strength of Wise Energy'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.