Earnings Tell The Story For Verve Group SE (ETR:M8G) As Its Stock Soars 28%

Verve Group SE (ETR:M8G) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 268% in the last year.

Following the firm bounce in price, Verve Group's price-to-earnings (or "P/E") ratio of 34x might make it look like a strong sell right now compared to the market in Germany, where around half of the companies have P/E ratios below 16x and even P/E's below 10x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Verve Group has been doing relatively well. 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.

See our latest analysis for Verve Group

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

What Are Growth Metrics Telling Us About The High P/E?

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

Retrospectively, the last year delivered an exceptional 36% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 30% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 132% during the coming year according to the nine analysts following the company. That's shaping up to be materially higher than the 19% growth forecast for the broader market.

In light of this, it's understandable that Verve Group's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has got Verve Group's P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Verve 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Verve Group (1 shouldn't be ignored!) that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.