Earnings Not Telling The Story For Proeduca Altus, S.A. (BME:PRO) After Shares Rise 26%

The Proeduca Altus, S.A. (BME:PRO) share price has done very well over the last month, posting an excellent gain of 26%. The last 30 days bring the annual gain to a very sharp 56%.

Following the firm bounce in price, Proeduca Altus may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 38.5x, 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 highly elevated P/E.

As an illustration, earnings have deteriorated at Proeduca Altus over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

View our latest analysis for Proeduca Altus

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Proeduca Altus' earnings, revenue and cash flow.

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 Proeduca Altus' is when the company's growth is on track to outshine the market decidedly.

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 1.8%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 71% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 25% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that Proeduca Altus is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Proeduca Altus' P/E

The strong share price surge has got Proeduca Altus' P/E rushing to great heights as well. 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.

We've established that Proeduca Altus currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Proeduca Altus is showing 1 warning sign in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Proeduca Altus. 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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