Makarony Polskie S.A. (WSE:MAK) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Makarony Polskie S.A. (WSE:MAK) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, given about half the companies in Poland have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Makarony Polskie as an attractive investment with its 8.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

With earnings that are retreating more than the market's of late, Makarony Polskie has been very sluggish. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Makarony Polskie

Keen to find out how analysts think Makarony Polskie's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Makarony Polskie's Growth Trending?

Makarony Polskie's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 9.1%. Even so, admirably EPS has lifted 156% in aggregate from three years ago, notwithstanding the last 12 months. 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.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 6.6% per year over the next three years. With the market predicted to deliver 14% growth per year, the company is positioned for a weaker earnings result.

With this information, we can see why Makarony Polskie is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift Makarony Polskie's P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Makarony Polskie maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Makarony Polskie that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.