What Sidetrade SA's (EPA:ALBFR) 28% Share Price Gain Is Not Telling You

The Sidetrade SA (EPA:ALBFR) share price has done very well over the last month, posting an excellent gain of 28%. The last 30 days bring the annual gain to a very sharp 38%.

Following the firm bounce in price, given close to half the companies in France have price-to-earnings ratios (or "P/E's") below 16x, you may consider Sidetrade as a stock to avoid entirely with its 48.9x P/E ratio. 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.

Recent times have been pleasing for Sidetrade as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Sidetrade

Want the full picture on analyst estimates for the company? Then our free report on Sidetrade will help you uncover what's on the horizon.

Is There Enough Growth For Sidetrade?

The only time you'd be truly comfortable seeing a P/E as steep as Sidetrade's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 65% gain to the company's bottom line. Pleasingly, EPS has also lifted 70% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 19% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to expand by 19%, which is not materially different.

With this information, we find it interesting that Sidetrade is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Sidetrade's P/E

Shares in Sidetrade have built up some good momentum lately, which has really inflated its P/E. 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.

Our examination of Sidetrade's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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

If these risks are making you reconsider your opinion on Sidetrade, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.