More Unpleasant Surprises Could Be In Store For BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek S.A.'s (WSE:BML) Shares After Tumbling 48%

By
Simply Wall St
Published
November 29, 2021
WSE:BML
Source: Shutterstock

BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek S.A. (WSE:BML) shareholders that were waiting for something to happen have been dealt a blow with a 48% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

Even after such a large drop in price, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 11x, you may still consider BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek as a stock to avoid entirely with its 66.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's exceedingly strong of late, BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek

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WSE:BML Price Based on Past Earnings November 30th 2021
Although there are no analyst estimates available for BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 102% last year. Still, incredibly EPS has fallen 50% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to decline by 8.5% over the next year, or less than the company's recent medium-term annualised earnings decline.

With this information, it's strange that BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek is trading at a higher P/E in comparison. In general, when earnings shrink rapidly the P/E premium often shrinks too, which could set up shareholders for future disappointment. Maintaining these prices will be extremely difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

What We Can Learn From BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's P/E?

Even after such a strong price drop, BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek's P/E still exceeds the rest of the market significantly. 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 BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek revealed its sharp three-year contraction in earnings isn't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to shrink less severely. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is unlikely to support such positive sentiment for long. In addition, we would be concerned whether the company can even maintain its medium-term level of performance under these tough market conditions. Unless the company's relative performance improves markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for BIOMED-LUBLIN Wytwórnia Surowic i Szczepionek (1 is concerning!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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