Investors Appear Satisfied With Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's (WSE:KPI) Prospects As Shares Rocket 28%

Kancelaria Prawna-Inkaso WEC Spólka Akcyjna (WSE:KPI) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The annual gain comes to 105% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Kancelaria Prawna-Inkaso WEC Spólka Akcyjna may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 21x, since almost half of all companies in Poland have P/E ratios under 12x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

As an illustration, earnings have deteriorated at Kancelaria Prawna-Inkaso WEC Spólka Akcyjna over the last year, which is not ideal at all. 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.

View our latest analysis for Kancelaria Prawna-Inkaso WEC Spólka Akcyjna

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

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 176% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 7.5% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Kancelaria Prawna-Inkaso WEC Spólka Akcyjna'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 Key Takeaway

The strong share price surge has got Kancelaria Prawna-Inkaso WEC Spólka Akcyjna'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.

We've established that Kancelaria Prawna-Inkaso WEC Spólka Akcyjna maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Kancelaria Prawna-Inkaso WEC Spólka Akcyjna (3 make us uncomfortable) you should be aware of.

You might be able to find a better investment than Kancelaria Prawna-Inkaso WEC Spólka Akcyjna. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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

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.