There's No Escaping Eurotel S.A.'s (WSE:ETL) Muted Earnings Despite A 37% Share Price Rise

Despite an already strong run, Eurotel S.A. (WSE:ETL) shares have been powering on, with a gain of 37% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Although its price has surged higher, given about half the companies in Poland have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Eurotel as an attractive investment with its 9.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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For instance, Eurotel's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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.

View our latest analysis for Eurotel

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 Eurotel's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Eurotel's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 16%. This means it has also seen a slide in earnings over the longer-term as EPS is down 57% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's an unpleasant look.

With this information, we are not surprised that Eurotel is trading at a P/E lower than the market. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Eurotel's P/E

The latest share price surge wasn't enough to lift Eurotel's P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Eurotel revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 4 warning signs we've spotted with Eurotel (including 2 which are potentially serious).

If you're unsure about the strength of Eurotel's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.