Further Upside For Makarony Polskie S.A. (WSE:MAK) Shares Could Introduce Price Risks After 25% Bounce

Makarony Polskie S.A. (WSE:MAK) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last month tops off a massive increase of 116% in the last year.

Although its price has surged higher, Makarony Polskie may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.6x, since almost half of all companies in Poland have P/E ratios greater than 13x and even P/E's higher than 25x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Makarony Polskie as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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 Makarony Polskie

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 Makarony Polskie's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Makarony Polskie's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 34%. The strong recent performance means it was also able to grow EPS by 266% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 11% 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 Makarony Polskie is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Makarony Polskie's P/E?

Despite Makarony Polskie's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Makarony Polskie currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Makarony Polskie is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.