After Leaping 28% Frequentis AG (ETR:FQT) Shares Are Not Flying Under The Radar

Frequentis AG (ETR:FQT) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 179% in the last year.

After such a large jump in price, given close to half the companies in Germany have price-to-earnings ratios (or "P/E's") below 18x, you may consider Frequentis as a stock to avoid entirely with its 49.6x P/E ratio. 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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Recent times have been advantageous for Frequentis 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Frequentis

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

How Is Frequentis' Growth Trending?

Frequentis' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 20% last year. As a result, it also grew EPS by 22% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader market.

In light of this, it's understandable that Frequentis' 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 Key Takeaway

Frequentis' P/E is flying high just like its stock has during the last month. 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 Frequentis 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Frequentis that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.