Investors Appear Satisfied With Shelly Group AD's (BUL:SLYG) Prospects As Shares Rocket 25%

Shelly Group AD (BUL:SLYG) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 168% in the last year.

Since its price has surged higher, given close to half the companies in Bulgaria have price-to-earnings ratios (or "P/E's") below 11x, you may consider Shelly Group AD as a stock to avoid entirely with its 40.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Shelly Group AD as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Shelly Group AD

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

How Is Shelly Group AD's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. Pleasingly, EPS has also lifted 252% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 51% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 12% growth forecast for the broader market.

With this information, we can see why Shelly Group AD is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in Shelly Group AD have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Shelly Group AD's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Shelly Group AD with six simple checks.

Of course, you might also be able to find a better stock than Shelly Group AD. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.