Internet Union S.A.'s (WSE:IUS) P/E Is Still On The Mark Following 28% Share Price Bounce

Despite an already strong run, Internet Union S.A. (WSE:IUS) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 95%.

Since its price has surged higher, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 12x, you may consider Internet Union as a stock to avoid entirely with its 26.1x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

For example, consider that Internet Union's financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Internet Union

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 Internet Union's earnings, revenue and cash flow.

How Is Internet Union's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 11%. Still, the latest three year period has seen an excellent 52% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.0% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Internet Union's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

Shares in Internet Union have built up some good momentum lately, which has really inflated its P/E. 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 Internet Union maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, 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. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Internet Union (2 are a bit concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Internet Union, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.