Asseco Poland S.A.'s (WSE:ACP) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think Asseco Poland S.A.'s (WSE:ACP) price-to-earnings (or "P/E") ratio of 12.1x is worth a mention when the median P/E in Poland is similar at about 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.

Asseco Poland certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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Is There Some Growth For Asseco Poland?

There's an inherent assumption that a company should be matching the market for P/E ratios like Asseco Poland's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 17%. As a result, it also grew EPS by 27% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 6.1% each year over the next three years. That's shaping up to be materially lower than the 9.5% each year growth forecast for the broader market.

With this information, we find it interesting that Asseco Poland is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Asseco Poland'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.

Our examination of Asseco Poland's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Asseco Poland with six simple checks will allow you to discover any risks that could be an issue.

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

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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.