Orange Polska S.A.'s (WSE:OPL) P/E Is On The Mark

By
Simply Wall St
Published
May 27, 2021
WSE:OPL
Source: Shutterstock

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.

Check out our latest analysis for Orange Polska

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WSE:OPL Price Based on Past Earnings May 28th 2021
Want the full picture on analyst estimates for the company? Then our 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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