Risks Still Elevated At These Prices As Creepy Jar S.A. (WSE:CRJ) Shares Dive 28%

Unfortunately for some shareholders, the Creepy Jar S.A. (WSE:CRJ) share price has dived 28% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

Although its price has dipped substantially, Creepy Jar may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 20.2x, since almost half of all companies in Poland have P/E ratios under 11x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

As an illustration, earnings have deteriorated at Creepy Jar over the last year, which is not ideal at all. 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 Creepy Jar

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 Creepy Jar's earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Creepy Jar would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 66% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 69% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 20% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Creepy Jar is trading at a P/E higher than the market. 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 Bottom Line On Creepy Jar's P/E

Even after such a strong price drop, Creepy Jar's P/E still exceeds the rest of the market significantly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Creepy Jar 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. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Creepy Jar is showing 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant.

If you're unsure about the strength of Creepy Jar'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.