After Leaping 25% Cyfrowy Polsat S.A. (WSE:CPS) Shares Are Not Flying Under The Radar

Cyfrowy Polsat S.A. (WSE:CPS) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, given around half the companies in Poland have price-to-earnings ratios (or "P/E's") below 10x, you may consider Cyfrowy Polsat as a stock to potentially avoid with its 14.1x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Cyfrowy Polsat has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Cyfrowy Polsat would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 100% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 85% drop in EPS in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 26% per annum as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 6.5% per annum, which is noticeably less attractive.

With this information, we can see why Cyfrowy Polsat is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Cyfrowy Polsat's P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Cyfrowy Polsat maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Cyfrowy Polsat, and understanding should be part of your investment process.

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

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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.