Earnings Tell The Story For Les Docks des Pétroles d'Ambès -SA (EPA:DPAM) As Its Stock Soars 26%

Despite an already strong run, Les Docks des Pétroles d'Ambès -SA (EPA:DPAM) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

Following the firm bounce in price, Les Docks des Pétroles d'Ambès -SA may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.8x, since almost half of all companies in France have P/E ratios under 14x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For example, consider that Les Docks des Pétroles d'Ambès -SA's financial performance has been poor lately as its earnings have been in decline. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Les Docks des Pétroles d'Ambès -SA?

The only time you'd be truly comfortable seeing a P/E as high as Les Docks des Pétroles d'Ambès -SA's is when the company's growth is on track to outshine the market.

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 9.8%. Even so, admirably EPS has lifted 61% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Les Docks des Pétroles d'Ambès -SA is trading at such a high P/E compared to the market. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Les Docks des Pétroles d'Ambès -SA's P/E

Les Docks des Pétroles d'Ambès -SA's P/E is getting right up there since its shares have risen strongly. 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 Les Docks des Pétroles d'Ambès -SA maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, 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 the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Les Docks des Pétroles d'Ambès -SA that you should be aware of.

If you're unsure about the strength of Les Docks des Pétroles d'Ambès -SA'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.