After Leaping 29% Vytrus Biotech, S.A. (BME:VYT) Shares Are Not Flying Under The Radar

Despite an already strong run, Vytrus Biotech, S.A. (BME:VYT) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 98%.

Since its price has surged higher, Vytrus Biotech's price-to-earnings (or "P/E") ratio of 37.6x might make it look like a strong sell right now compared to the market in Spain, where around half of the companies have P/E ratios below 19x and even P/E's below 11x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With earnings growth that's superior to most other companies of late, Vytrus Biotech 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.

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How Is Vytrus Biotech's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 68% last year. The latest three year period has also seen an excellent 109% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 47% per annum over the next three years. That's shaping up to be materially higher than the 13% each year growth forecast for the broader market.

In light of this, it's understandable that Vytrus Biotech'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 Vytrus Biotech's P/E rushing to great heights as well. 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.

We've established that Vytrus Biotech 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. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Vytrus Biotech has 2 warning signs we think you should be aware of.

If you're unsure about the strength of Vytrus Biotech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.