Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A. (WSE:TLG) Stocks Shoot Up 25% But Its P/E Still Looks Reasonable

The Przedsiebiorstwa Telekomunikacyjnego TELGAM S.A. (WSE:TLG) share price has done very well over the last month, posting an excellent gain of 25%. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

After such a large jump in price, Przedsiebiorstwa Telekomunikacyjnego TELGAM's price-to-earnings (or "P/E") ratio of 36.2x 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 12x and even P/E's below 8x 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.

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For example, consider that Przedsiebiorstwa Telekomunikacyjnego TELGAM's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Przedsiebiorstwa Telekomunikacyjnego TELGAM's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 8.2% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 98% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Przedsiebiorstwa Telekomunikacyjnego TELGAM's P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

Shares in Przedsiebiorstwa Telekomunikacyjnego TELGAM have built up some good momentum lately, which has really inflated its P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Przedsiebiorstwa Telekomunikacyjnego TELGAM revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Przedsiebiorstwa Telekomunikacyjnego TELGAM (2 are significant!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.