Market Might Still Lack Some Conviction On Tarczynski S.A. (WSE:TAR) Even After 25% Share Price Boost

Tarczynski S.A. (WSE:TAR) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last month tops off a massive increase of 153% in the last year.

Although its price has surged higher, Tarczynski may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.2x, since almost half of all companies in Poland have P/E ratios greater than 12x and even P/E's higher than 23x 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 limited.

Tarczynski certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Tarczynski

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 Tarczynski'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 Tarczynski's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 155% last year. The latest three year period has also seen an excellent 49% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 15% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

With this information, we find it odd that Tarczynski is trading at a P/E lower than the market. It may be that most investors are not convinced the company can maintain recent growth rates.

The Key Takeaway

The latest share price surge wasn't enough to lift Tarczynski's P/E close to the market median. 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 Tarczynski revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look similar to current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching the company's performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Tarczynski (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Tarczynski. 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.