After Leaping 27% AtkinsRéalis Group Inc. (TSE:ATRL) Shares Are Not Flying Under The Radar

AtkinsRéalis Group Inc. (TSE:ATRL) shareholders have had their patience rewarded with a 27% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 70%.

Following the firm bounce in price, AtkinsRéalis Group may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 49.8x, since almost half of all companies in Canada have P/E ratios under 14x and even P/E's lower than 8x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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AtkinsRéalis Group could be doing better as it's been growing earnings less than most other companies lately. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is AtkinsRéalis Group's Growth Trending?

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

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Although pleasingly EPS has lifted 443% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 39% per annum during the coming three years according to the twelve analysts following the company. That's shaping up to be materially higher than the 9.9% per year growth forecast for the broader market.

In light of this, it's understandable that AtkinsRéalis Group'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 Final Word

Shares in AtkinsRéalis Group 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.

We've established that AtkinsRéalis Group maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for AtkinsRéalis Group with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on AtkinsRéalis Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.