More Unpleasant Surprises Could Be In Store For CFI Holding S.A.'s (WSE:CFI) Shares After Tumbling 28%

The CFI Holding S.A. (WSE:CFI) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.

Although its price has dipped substantially, it's still not a stretch to say that CFI Holding's price-to-earnings (or "P/E") ratio of 9.4x right now seems quite "middle-of-the-road" compared to the market in Poland, where the median P/E ratio is around 11x. 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.

Earnings have risen firmly for CFI Holding recently, which is pleasing to see. It might be that many expect the respectable earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

See our latest analysis for CFI Holding

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

Is There Some Growth For CFI Holding?

CFI Holding's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 20% shows it's noticeably less attractive on an annualised basis.

With this information, we find it interesting that CFI Holding is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

What We Can Learn From CFI Holding's P/E?

With its share price falling into a hole, the P/E for CFI Holding looks quite average now. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of CFI Holding revealed its three-year earnings trends aren't impacting its P/E 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 moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for CFI Holding you should be aware of, and 1 of them is potentially serious.

If these risks are making you reconsider your opinion on CFI Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.