Answear.com S.A.'s (WSE:ANR) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 32.5x Answear.com S.A. (WSE:ANR) may be sending very bearish signals at the moment, given that almost half of all companies in Poland have P/E ratios under 11x and even P/E's lower than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been quite advantageous for Answear.com as its earnings have been rising very briskly. 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Answear.com

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

How Is Answear.com's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Answear.com'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 110% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 4.1% shows it's a great look while it lasts.

In light of this, it's understandable that Answear.com's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

What We Can Learn From Answear.com's P/E?

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 Answear.com maintains its high P/E on the strength of its recentthree-year growth beating forecasts for a struggling market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Our only concern is whether its earnings trajectory can keep outperforming under these tough market conditions. Although, if the company's relative performance doesn't change it will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Answear.com you should be aware of, and 1 of them doesn't sit too well with us.

If you're unsure about the strength of Answear.com's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.