Market Might Still Lack Some Conviction On A.P.N. Promise S.A. (WSE:PRO) Even After 30% Share Price Boost

A.P.N. Promise S.A. (WSE:PRO) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 30%.

Although its price has surged higher, A.P.N. Promise's price-to-earnings (or "P/E") ratio of 4.7x might still make it look like a strong 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 29x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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A.P.N. Promise certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. 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 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.

Is There Any Growth For A.P.N. Promise?

A.P.N. Promise's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 332%. The strong recent performance means it was also able to grow EPS by 655% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that A.P.N. Promise is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

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

Even after such a strong price move, A.P.N. Promise's P/E still trails the rest of the market significantly. 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.

Our examination of A.P.N. Promise revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for A.P.N. Promise (of which 1 is a bit unpleasant!) 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.