Why Investors Shouldn't Be Surprised By TAURON Polska Energia S.A.'s (WSE:TPE) 33% Share Price Surge

TAURON Polska Energia S.A. (WSE:TPE) shares have continued their recent momentum with a 33% gain in the last month alone. The last month tops off a massive increase of 101% in the last year.

After such a large jump in price, TAURON Polska Energia's price-to-earnings (or "P/E") ratio of 19.4x might make it look like a sell right now compared to the market in Poland, where around half of the companies have P/E ratios below 13x 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 elevated P/E.

We've discovered 2 warning signs about TAURON Polska Energia. View them for free.

Recent times haven't been advantageous for TAURON Polska Energia as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for TAURON Polska Energia

Keen to find out how analysts think TAURON Polska Energia's future stacks up against the industry? In that case, our free report is a great place to start.

How Is TAURON Polska Energia's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like TAURON Polska Energia's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 48%. As a result, earnings from three years ago have also fallen 25% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 79% per year as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.

In light of this, it's understandable that TAURON Polska Energia's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The large bounce in TAURON Polska Energia's shares has lifted the company's P/E to a fairly high level. 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.

We've established that TAURON Polska Energia maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for TAURON Polska Energia 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.

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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.