Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A. (WSE:TLG) Stock Rockets 32% As Investors Are Less Pessimistic Than Expected

Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A. (WSE:TLG) shareholders have had their patience rewarded with a 32% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

After such a large jump in price, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 12x, you may consider Przedsiebiorstwa Telekomunikacyjnego TELGAM as a stock to avoid entirely with its 27.2x 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.

Recent times have been quite advantageous for Przedsiebiorstwa Telekomunikacyjnego TELGAM as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Przedsiebiorstwa Telekomunikacyjnego TELGAM

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 Przedsiebiorstwa Telekomunikacyjnego TELGAM's earnings, revenue and cash flow.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Przedsiebiorstwa Telekomunikacyjnego TELGAM would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 39%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 13% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Przedsiebiorstwa Telekomunikacyjnego TELGAM is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Przedsiebiorstwa Telekomunikacyjnego TELGAM's P/E?

Shares in Przedsiebiorstwa Telekomunikacyjnego TELGAM have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Przedsiebiorstwa Telekomunikacyjnego TELGAM revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Plus, you should also learn about these 3 warning signs we've spotted with Przedsiebiorstwa Telekomunikacyjnego TELGAM (including 1 which is concerning).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.