Arteche Lantegi Elkartea, S.A.'s (BME:ART) P/E Is Still On The Mark Following 28% Share Price Bounce

Arteche Lantegi Elkartea, S.A. (BME:ART) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last month tops off a massive increase of 110% in the last year.

Following the firm bounce in price, given close to half the companies in Spain have price-to-earnings ratios (or "P/E's") below 19x, you may consider Arteche Lantegi Elkartea as a stock to avoid entirely with its 30.9x 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.

With earnings growth that's superior to most other companies of late, Arteche Lantegi Elkartea 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.

Check out our latest analysis for Arteche Lantegi Elkartea

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

Does Growth Match The High P/E?

In order to justify its P/E ratio, Arteche Lantegi Elkartea would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. EPS has also lifted 7.8% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 29% per annum as estimated by the two analysts watching the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Arteche Lantegi Elkartea is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Arteche Lantegi Elkartea have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Arteche Lantegi Elkartea'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. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Arteche Lantegi Elkartea 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.