Tarczynski S.A.'s (WSE:TAR) 26% Price Boost Is Out Of Tune With Earnings

Tarczynski S.A. (WSE:TAR) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Tarczynski's P/E ratio of 10.6x, since the median price-to-earnings (or "P/E") ratio in Poland is also close to 12x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For example, consider that Tarczynski's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Tarczynski

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

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Tarczynski's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a frustrating 34% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.0% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that Tarczynski is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now Tarczynski's P/E is also back up to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Tarczynski currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are uncomfortable with the P/E as this earnings performance isn't likely 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.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Tarczynski you should know about.

You might be able to find a better investment than Tarczynski. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.