With A 27% Price Drop For e-Xim IT S.A. (WSE:EXM) You'll Still Get What You Pay For

e-Xim IT S.A. (WSE:EXM) shareholders that were waiting for something to happen have been dealt a blow with a 27% share price drop in the last month. Still, a bad month hasn't completely ruined the past year with the stock gaining 46%, which is great even in a bull market.

Even after such a large drop in price, e-Xim IT's price-to-earnings (or "P/E") ratio of 17.3x might still make it look like a sell right now compared to the market in Poland, where around half of the companies have P/E ratios below 12x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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For example, consider that e-Xim IT's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do 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.

View our latest analysis for e-Xim IT

Although there are no analyst estimates available for e-Xim IT, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For e-Xim IT?

In order to justify its P/E ratio, e-Xim IT would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 68%. Even so, admirably EPS has lifted 312% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that e-Xim IT'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.

What We Can Learn From e-Xim IT's P/E?

e-Xim IT's P/E hasn't come down all the way after its stock plunged. 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 e-Xim IT maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for e-Xim IT (of which 2 are significant!) you should know about.

Of course, you might also be able to find a better stock than e-Xim IT. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.