Optimistic Investors Push Kredyt Inkaso S.A. (WSE:KRI) Shares Up 26% But Growth Is Lacking

Kredyt Inkaso S.A. (WSE:KRI) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last month tops off a massive increase of 106% in the last year.

Although its price has surged higher, it's still not a stretch to say that Kredyt Inkaso's price-to-earnings (or "P/E") ratio of 10.4x right now seems quite "middle-of-the-road" compared to the market in Poland, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been quite advantageous for Kredyt Inkaso as its earnings have been rising very briskly. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Kredyt Inkaso

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

How Is Kredyt Inkaso's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 137% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 47% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 15% shows it's an unpleasant look.

With this information, we find it concerning that Kredyt Inkaso is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 the recent negative growth rates.

The Key Takeaway

Kredyt Inkaso appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Kredyt Inkaso currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Kredyt Inkaso (1 can't be ignored!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Kredyt Inkaso. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.