Even With A 25% Surge, Cautious Investors Are Not Rewarding Quart Development S.A.'s (WSE:QRT) Performance Completely

Quart Development S.A. (WSE:QRT) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 15% in the last twelve months.

Although its price has surged higher, given about half the companies in Poland have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Quart Development as a highly attractive investment with its 5.6x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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Quart Development certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Quart Development

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

Is There Any Growth For Quart Development?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Quart Development's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 80% gain to the company's bottom line. The latest three year period has also seen an excellent 241% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Quart Development's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Shares in Quart Development are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Quart Development currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

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

You might be able to find a better investment than Quart Development. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.