Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's (WSE:KPI) 32% Price Boost Is Out Of Tune With Earnings

Kancelaria Prawna-Inkaso WEC Spólka Akcyjna (WSE:KPI) shares have continued their recent momentum with a 32% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 86% in the last year.

Since its price has surged higher, Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's price-to-earnings (or "P/E") ratio of 16.3x 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

The earnings growth achieved at Kancelaria Prawna-Inkaso WEC Spólka Akcyjna over the last year would be more than acceptable for most companies. It might be that many expect the respectable 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.

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.

Does Growth Match The High P/E?

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

If we review the last year of earnings growth, the company posted a worthy increase of 11%. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 11% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's alarming that Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's P/E

Kancelaria Prawna-Inkaso WEC Spólka Akcyjna's P/E is getting right up there since its shares have risen strongly. 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 currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Kancelaria Prawna-Inkaso WEC Spólka Akcyjna (at least 3 which are potentially serious), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Kancelaria Prawna-Inkaso WEC Spólka Akcyjna, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.