Harper Hygienics S.A. (WSE:HRP) Might Not Be As Mispriced As It Looks After Plunging 26%

The Harper Hygienics S.A. (WSE:HRP) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 62% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Harper Hygienics' P/E ratio of 12.2x, since the median price-to-earnings (or "P/E") ratio in Poland is also close to 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

As an illustration, earnings have deteriorated at Harper Hygienics over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Harper Hygienics

Although there are no analyst estimates available for Harper Hygienics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The P/E?

Harper Hygienics' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 0.8% shows it's a great look while it lasts.

With this information, we find it odd that Harper Hygienics is trading at a fairly similar P/E to the market. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader market.

The Key Takeaway

With its share price falling into a hole, the P/E for Harper Hygienics looks quite average now. 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 Harper Hygienics currently trades on a lower than expected P/E since its recent three-year earnings growth is beating forecasts for a struggling market. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. One major risk is whether its earnings trajectory can keep outperforming under these tough market conditions. It appears some are indeed anticipating earnings instability, because this relative performance should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 5 warning signs for Harper Hygienics (1 makes us a bit uncomfortable!) that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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.

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