Investors Appear Satisfied With Orange Polska S.A.'s (WSE:OPL) Prospects

There wouldn't be many who think Orange Polska S.A.'s (WSE:OPL) price-to-earnings (or "P/E") ratio of 14.5x is worth a mention when the median P/E in Poland is similar at about 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

We've discovered 1 warning sign about Orange Polska. View them for free.

Orange Polska certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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What Are Growth Metrics Telling Us About The P/E?

The only time you'd be comfortable seeing a P/E like Orange Polska's is when the company's growth is tracking the market closely.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 13% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 50% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the seven analysts watching the company. That's shaping up to be similar to the 9.7% per annum growth forecast for the broader market.

In light of this, it's understandable that Orange Polska's P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

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.

We've established that Orange Polska maintains its moderate P/E off the back of its forecast growth being in line with the wider market, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. It's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Orange Polska you should know about.

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

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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.