Investors Appear Satisfied With RMS Mezzanine, a.s.'s (SEP:PVT) Prospects As Shares Rocket 47%

Those holding RMS Mezzanine, a.s. (SEP:PVT) shares would be relieved that the share price has rebounded 47% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

After such a large jump in price, RMS Mezzanine may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 25.6x, since almost half of all companies in Czech Republic have P/E ratios under 12x and even P/E's lower than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

RMS Mezzanine certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for RMS Mezzanine

Although there are no analyst estimates available for RMS Mezzanine, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is RMS Mezzanine's Growth Trending?

In order to justify its P/E ratio, RMS Mezzanine would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 37% gain to the company's bottom line. Pleasingly, EPS has also lifted 421% 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.

Comparing that to the market, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we can see why RMS Mezzanine is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

The strong share price surge has got RMS Mezzanine's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that RMS Mezzanine maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. 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.

And what about other risks? Every company has them, and we've spotted 5 warning signs for RMS Mezzanine (of which 3 are a bit unpleasant!) you should know about.

Of course, you might also be able to find a better stock than RMS Mezzanine. 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.