More Unpleasant Surprises Could Be In Store For PMPG Polskie Media SA's (WSE:PGM) Shares After Tumbling 26%

PMPG Polskie Media SA (WSE:PGM) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The last month has meant the stock is now only up 5.5% during the last year.

Even after such a large drop in price, it's still not a stretch to say that PMPG Polskie Media's price-to-earnings (or "P/E") ratio of 10.6x right now seems quite "middle-of-the-road" compared to the market in Poland, where the median P/E ratio is around 12x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For instance, PMPG Polskie Media's receding earnings in recent times would have to be some food for thought. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for PMPG Polskie Media

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

How Is PMPG Polskie Media's Growth Trending?

In order to justify its P/E ratio, PMPG Polskie Media would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 51%. This means it has also seen a slide in earnings over the longer-term as EPS is down 47% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 5.7% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that PMPG Polskie Media is trading at a fairly similar P/E to 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. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Bottom Line On PMPG Polskie Media's P/E

With its share price falling into a hole, the P/E for PMPG Polskie Media looks quite average now. 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 PMPG Polskie Media currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for PMPG Polskie Media (1 makes us a bit uncomfortable!) that you need to be mindful of.

Of course, you might also be able to find a better stock than PMPG Polskie Media. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.