Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A.'s (WSE:TLG) 29% Share Price Surge Not Quite Adding Up

Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A. (WSE:TLG) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.

Following the firm bounce in price, given close to half the companies in Poland have price-to-earnings ratios (or "P/E's") below 11x, you may consider Przedsiebiorstwa Telekomunikacyjnego TELGAM as a stock to avoid entirely with its 40.9x P/E ratio. 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.

The earnings growth achieved at Przedsiebiorstwa Telekomunikacyjnego TELGAM over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View 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.

Is There Enough Growth For Przedsiebiorstwa Telekomunikacyjnego TELGAM?

The only time you'd be truly comfortable seeing a P/E as steep as Przedsiebiorstwa Telekomunikacyjnego TELGAM's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 29% 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. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 15% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that Przedsiebiorstwa Telekomunikacyjnego TELGAM's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

The strong share price surge has got Przedsiebiorstwa Telekomunikacyjnego TELGAM's P/E rushing to great heights as well. 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.

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. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 5 warning signs for Przedsiebiorstwa Telekomunikacyjnego TELGAM (2 are potentially serious!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Przedsiebiorstwa Telekomunikacyjnego TELGAM. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.