There's Reason For Concern Over Polskie Towarzystwo Wspierania Przedsiebiorczosci S.A.'s (WSE:PTW) Massive 28% Price Jump

Explore Polskie Towarzystwo Wspierania Przedsiebiorczosci's Fair Values from the Community and select yours

Polskie Towarzystwo Wspierania Przedsiebiorczosci S.A. (WSE:PTW) shares have continued their recent momentum with a 28% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 97% 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 Polskie Towarzystwo Wspierania Przedsiebiorczosci as a stock to avoid entirely with its 20.6x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, Polskie Towarzystwo Wspierania Przedsiebiorczosci has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Polskie Towarzystwo Wspierania Przedsiebiorczosci

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 Polskie Towarzystwo Wspierania Przedsiebiorczosci's earnings, revenue and cash flow.

How Is Polskie Towarzystwo Wspierania Przedsiebiorczosci's Growth Trending?

In order to justify its P/E ratio, Polskie Towarzystwo Wspierania Przedsiebiorczosci would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 111%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 19% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Polskie Towarzystwo Wspierania Przedsiebiorczosci is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

The strong share price surge has got Polskie Towarzystwo Wspierania Przedsiebiorczosci's P/E rushing to great heights as well. 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.

Our examination of Polskie Towarzystwo Wspierania Przedsiebiorczosci revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, 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's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Polskie Towarzystwo Wspierania Przedsiebiorczosci (at least 1 which is potentially serious), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.