After Leaping 30% Arteche Lantegi Elkartea, S.A. (BME:ART) Shares Are Not Flying Under The Radar

Despite an already strong run, Arteche Lantegi Elkartea, S.A. (BME:ART) shares have been powering on, with a gain of 30% in the last thirty days. The annual gain comes to 149% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Arteche Lantegi Elkartea may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 25.8x, since almost half of all companies in Spain have P/E ratios under 18x and even P/E's lower than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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With earnings growth that's exceedingly strong of late, Arteche Lantegi Elkartea has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Arteche Lantegi Elkartea

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

Is There Enough Growth For Arteche Lantegi Elkartea?

There's an inherent assumption that a company should outperform the market for P/E ratios like Arteche Lantegi Elkartea's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. Pleasingly, EPS has also lifted 240% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 10% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Arteche Lantegi Elkartea 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 Bottom Line On Arteche Lantegi Elkartea's P/E

The large bounce in Arteche Lantegi Elkartea's shares has lifted the company's P/E to a fairly high level. 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.

As we suspected, our examination of Arteche Lantegi Elkartea revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Arteche Lantegi Elkartea you should know about.

If these risks are making you reconsider your opinion on Arteche Lantegi Elkartea, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.