Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A.'s (WSE:TLG) 31% 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 31% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Following the firm bounce in price, Przedsiebiorstwa Telekomunikacyjnego TELGAM's price-to-earnings (or "P/E") ratio of 40.8x might make it look like a strong sell right now compared to the market in Poland, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's exceedingly strong of late, Przedsiebiorstwa Telekomunikacyjnego TELGAM has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Przedsiebiorstwa Telekomunikacyjnego TELGAM

Although there are no analyst estimates available for Przedsiebiorstwa Telekomunikacyjnego TELGAM, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Przedsiebiorstwa Telekomunikacyjnego TELGAM?

Przedsiebiorstwa Telekomunikacyjnego TELGAM's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 231%. 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.

This is in contrast to the rest of the market, which is expected to grow by 7.8% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Przedsiebiorstwa Telekomunikacyjnego TELGAM is trading at a P/E higher than the market. 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.

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. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future 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. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with Przedsiebiorstwa Telekomunikacyjnego TELGAM (including 1 which is significant).

You might be able to find a better investment than Przedsiebiorstwa Telekomunikacyjnego TELGAM. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.