Why Investors Shouldn't Be Surprised By A.S. Création Tapeten AG's (ETR:ACWN) 25% Share Price Surge

Despite an already strong run, A.S. Création Tapeten AG (ETR:ACWN) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 120% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, A.S. Création Tapeten may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 46.3x, since almost half of all companies in Germany have P/E ratios under 26x and even P/E's lower than 15x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

A.S. Création Tapeten has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for A.S. Création Tapeten

Want the full picture on analyst estimates for the company? Then our free report on A.S. Création Tapeten will help you uncover what's on the horizon.

Is There Enough Growth For A.S. Création Tapeten?

In order to justify its P/E ratio, A.S. Création Tapeten would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 39%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 213% as estimated by the sole analyst watching the company. With the market only predicted to deliver 21%, the company is positioned for a stronger earnings result.

With this information, we can see why A.S. Création Tapeten is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

A.S. Création Tapeten's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of A.S. Création Tapeten'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.

Before you settle on your opinion, we've discovered 4 warning signs for A.S. Création Tapeten that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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