Optimistic Investors Push NSE S.A. (EPA:ALNSE) Shares Up 34% But Growth Is Lacking

NSE S.A. (EPA:ALNSE) shareholders have had their patience rewarded with a 34% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 50% in the last year.

After such a large jump in price, given close to half the companies in France have price-to-earnings ratios (or "P/E's") below 15x, you may consider NSE as a stock to avoid entirely with its 24.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

NSE certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for NSE

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

How Is NSE's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 41% last year. As a result, it also grew EPS by 9.3% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 11% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 16% per year, which is noticeably more attractive.

In light of this, it's alarming that NSE's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On NSE's P/E

Shares in NSE have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of NSE's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for NSE with six simple checks on some of these key factors.

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