Spyrosoft Spólka Akcyjna's (WSE:SPR) 28% Jump Shows Its Popularity With Investors

Spyrosoft Spólka Akcyjna (WSE:SPR) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 46%.

Following the firm bounce in price, Spyrosoft Spólka Akcyjna's price-to-earnings (or "P/E") ratio of 15.7x might 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 6x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Spyrosoft Spólka Akcyjna as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Spyrosoft Spólka Akcyjna

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 Spyrosoft Spólka Akcyjna's earnings, revenue and cash flow.

Does Growth Match The High P/E?

There's an inherent assumption that a company should outperform the market for P/E ratios like Spyrosoft Spólka Akcyjna's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. Pleasingly, EPS has also lifted 436% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing the recent medium-term upward earnings trajectory against the broader market's one-year forecast for contraction of 3.2% shows it's a great look while it lasts.

With this information, we can see why Spyrosoft Spólka Akcyjna is trading at a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse. However, its current earnings trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Key Takeaway

Spyrosoft Spólka Akcyjna's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Spyrosoft Spólka Akcyjna maintains its high P/E on the strength of its recentthree-year growth beating forecasts for a struggling market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Our only concern is whether its earnings trajectory can keep outperforming under these tough market conditions. Otherwise, it's hard to see the share price falling strongly in the near future if its earnings performance persists.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Spyrosoft Spólka Akcyjna (1 is a bit concerning) you should be aware of.

Of course, you might also be able to find a better stock than Spyrosoft Spólka Akcyjna. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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.

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