Investors Aren't Entirely Convinced By XBS PRO-LOG S.A.'s (WSE:XBS) Earnings

With a median price-to-earnings (or "P/E") ratio of close to 12x in Poland, you could be forgiven for feeling indifferent about XBS PRO-LOG S.A.'s (WSE:XBS) P/E ratio of 11.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

XBS PRO-LOG has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is moderate because investors think this respectable earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for XBS PRO-LOG

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 XBS PRO-LOG's earnings, revenue and cash flow.

Does Growth Match The P/E?

In order to justify its P/E ratio, XBS PRO-LOG would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.4%. This was backed up an excellent period prior to see EPS up by 210% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that XBS PRO-LOG is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From XBS PRO-LOG's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that XBS PRO-LOG currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 4 warning signs for XBS PRO-LOG (1 is a bit unpleasant!) that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.