Investors appear pleased with outlook for Sygnis SA (WSE:MOE) as shares soar 25%
Sygnis SA (WSE:MOE) Shareholders have seen their patience rewarded with a 25% jump in share price over the past month. But last month’s gains were not enough to reassure shareholders, as the share price is still down 7.8% over the past twelve months.
Following the firm rebound in prices, given that almost half of companies in Poland have price-to-earnings (or “P/E”) ratios below 12x, you can consider Sygnis a stock to avoid entirely with its 73, 1x P/E ratio. Nevertheless, we would need to dig a little deeper to determine if there is a rational basis for the very high P/E.
Sygnis has certainly been doing a great job lately, as its profits have been growing at a very rapid rate. It appears many expect the strong earnings performance to outperform most other companies in the period ahead, which has increased investors’ willingness to pay for the stock. Otherwise, existing shareholders might be a bit worried about the viability of the share price.
Check out our latest analysis for Sygnis
We don’t have analyst forecasts, but you can see how recent trends are preparing the company for the future by checking out our free report on the results, turnover and cash flow of Sygnis.
What is the growth trend of Sygnis?
Sygnis’ P/E ratio would be typical of a company that should generate very strong growth and, above all, much better than the market.
If we look at the last year of earnings growth, the company posted a tremendous 328% increase. Still, EPS has barely increased for three years in total, which isn’t ideal. As a result, shareholders would probably not have been too pleased with the unstable medium-term growth rates.
Weighting the recent upward trajectory of medium-term earnings against the broader market’s one-year forecast for a 3.3% contraction shows that it looks good while it lasts.
With this information, we can see why Sygnis is trading at a high P/E relative to the market. Presumably, shareholders don’t want to offload something they believe will continue to outsmart the stock market. However, its current earnings trajectory will be very difficult to sustain in the face of the headwinds that other companies are currently facing.
The last word
Sygnis’ P/E is booming, much like its stock did last month. We would argue that the power of the P/E ratio is not primarily a valuation tool, but rather to gauge current investor sentiment and future expectations.
We have established that Sygnis maintains its high P/E on the strength of its recent three-year growth forecast for a struggling market, as expected. At this point, investors believe the potential for earnings deterioration is not large enough to warrant a lower P/E ratio. Our only concern is whether its earnings trajectory can continue to outperform in these difficult market conditions. Otherwise, it is difficult to see the share price falling sharply in the near future if its earnings performance persists.
There are also other vital risk factors to consider and we have discovered 4 warning signs for Sygnis (2 are a bit of a concern!) that you should be aware of before investing here.
It’s important to be sure to research a great company, not just the first idea you come across. So take a look at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.