Optimistic Investors Push Biomass Energy Project S.A. (WSE:BEP) Shares Up 31% But Growth Is Lacking

Biomass Energy Project S.A. (WSE:BEP) shareholders have had their patience rewarded with a 31% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Since its price has surged higher, Biomass Energy Project may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 54.4x, since almost half of all companies in Poland have P/E ratios under 13x and even P/E's lower than 7x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Our free stock report includes 4 warning signs investors should be aware of before investing in Biomass Energy Project. Read for free now.

Recent times have been quite advantageous for Biomass Energy Project as its earnings have been rising very briskly. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Biomass Energy Project

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Biomass Energy Project's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Biomass Energy Project's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 41% gain to the company's bottom line. Still, incredibly EPS has fallen 91% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Biomass Energy Project is trading at a P/E higher than the market. 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

The strong share price surge has got Biomass Energy Project's P/E rushing to great heights as well. 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 Biomass Energy Project revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. 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.

You should always think about risks. Case in point, we've spotted 4 warning signs for Biomass Energy Project you should be aware of, and 3 of them are a bit unpleasant.

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

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.