A Piece Of The Puzzle Missing From A.P.N. Promise S.A.'s (WSE:PRO) 30% Share Price Climb

A.P.N. Promise S.A. (WSE:PRO) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

Although its price has surged higher, A.P.N. Promise's price-to-earnings (or "P/E") ratio of 7.3x might still make it look like a buy right now compared to the market in Poland, where around half of the companies have P/E ratios above 13x and even P/E's above 27x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, A.P.N. Promise has been doing very well. 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 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 out of favour.

See our latest analysis for A.P.N. Promise

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

How Is A.P.N. Promise's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as A.P.N. Promise's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 160% last year. The latest three year period has also seen an excellent 372% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that A.P.N. Promise is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Despite A.P.N. Promise's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that A.P.N. Promise 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.

And what about other risks? Every company has them, and we've spotted 4 warning signs for A.P.N. Promise (of which 2 are potentially serious!) you should know about.

Of course, you might also be able to find a better stock than A.P.N. Promise. 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.