There's Reason For Concern Over Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP S.A.'s (WSE:KMP) Massive 27% Price Jump

The Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP S.A. (WSE:KMP) share price has done very well over the last month, posting an excellent gain of 27%. Looking back a bit further, it's encouraging to see the stock is up 51% in the last year.

Following the firm bounce in price, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 12x, you may consider Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP as a stock to avoid entirely with its 20.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

For instance, Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP

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

How Is Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's Growth Trending?

Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 25%. As a result, earnings from three years ago have also fallen 2.9% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 6.5% shows it's an unpleasant look.

In light of this, it's alarming that Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Shares in Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 4 warning signs for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP that you need to take into consideration.

If you're unsure about the strength of Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.