Market Cool On A.P.N. Promise S.A.'s (WSE:PRO) Earnings Pushing Shares 26% Lower

A.P.N. Promise S.A. (WSE:PRO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 61%, which is great even in a bull market.

Following the heavy fall in price, A.P.N. Promise may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.3x, since almost half of all companies in Poland have P/E ratios greater than 12x and even P/E's higher than 21x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for A.P.N. Promise as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on A.P.N. Promise's earnings, revenue and cash flow.

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

In order to justify its P/E ratio, A.P.N. Promise would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 171% gain to the company's bottom line. The latest three year period has also seen an excellent 329% 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 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that A.P.N. Promise'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.

What We Can Learn From A.P.N. Promise's P/E?

A.P.N. Promise's P/E has taken a tumble along with its share price. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for A.P.N. Promise (3 don't sit too well with us) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.