Earnings Not Telling The Story For technotrans SE (ETR:TTR1) After Shares Rise 27%

technotrans SE (ETR:TTR1) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 90% in the last year.

Since its price has surged higher, given around half the companies in Germany have price-to-earnings ratios (or "P/E's") below 18x, you may consider technotrans as a stock to potentially avoid with its 22.2x P/E ratio. However, the P/E might be 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 technotrans as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for technotrans

If you'd like to see what analysts are forecasting going forward, you should check out our free report on technotrans.

How Is technotrans' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as technotrans' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 34% gain to the company's bottom line. The latest three year period has also seen an excellent 33% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 17% per year during the coming three years according to the three analysts following the company. That's shaping up to be similar to the 17% per year growth forecast for the broader market.

In light of this, it's curious that technotrans' P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Final Word

The large bounce in technotrans' shares has lifted the company's P/E to a fairly high level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that technotrans currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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

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