With a price-to-earnings (or "P/E") ratio of 71.4x Orange Polska S.A. (WSE:OPL) may be sending very bearish signals at the moment, given that almost half of all companies in Poland have P/E ratios under 15x and even P/E's lower than 8x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Orange Polska certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.free report on Orange Polska will help you uncover what's on the horizon.
How Is Orange Polska's Growth Trending?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Orange Polska's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 151% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Turning to the outlook, the next three years should generate growth of 83% per annum as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 13% per year growth forecast for the broader market.
With this information, we can see why Orange Polska is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Orange Polska's P/E
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Orange Polska's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 1 warning sign for Orange Polska that you should be aware of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
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