Arteche Lantegi Elkartea, S.A.'s (BME:ART) P/E Is Still On The Mark Following 27% Share Price Bounce

Despite an already strong run, Arteche Lantegi Elkartea, S.A. (BME:ART) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 248% in the last year.

Following the firm bounce in price, Arteche Lantegi Elkartea may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 38.8x, since almost half of all companies in Spain have P/E ratios under 16x and even P/E's lower than 10x 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.

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With earnings growth that's superior to most other companies of late, Arteche Lantegi Elkartea has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. 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

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

Is There Enough Growth For Arteche Lantegi Elkartea?

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

If we review the last year of earnings growth, the company posted a terrific increase of 121%. 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.

Looking ahead now, EPS is anticipated to climb by 24% per annum during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 12% each year, which is noticeably less attractive.

With this information, we can see why Arteche Lantegi Elkartea 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.

What We Can Learn From Arteche Lantegi Elkartea's P/E?

Shares in Arteche Lantegi Elkartea have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Arteche Lantegi Elkartea maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Arteche Lantegi Elkartea (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Arteche Lantegi Elkartea. 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.