Earnings Tell The Story For Lumibird SA (EPA:LBIRD) As Its Stock Soars 36%

Despite an already strong run, Lumibird SA (EPA:LBIRD) shares have been powering on, with a gain of 36% in the last thirty days. The last 30 days bring the annual gain to a very sharp 89%.

After such a large jump in price, Lumibird's price-to-earnings (or "P/E") ratio of 78.8x might make it look like a strong sell right now compared to the market in France, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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While the market has experienced earnings growth lately, Lumibird's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Lumibird

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lumibird.

How Is Lumibird's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 19%. The last three years don't look nice either as the company has shrunk EPS by 58% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the two analysts covering the company suggest earnings should grow by 57% per annum over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

In light of this, it's understandable that Lumibird's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Lumibird's P/E

The strong share price surge has got Lumibird's P/E rushing to great heights as well. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Lumibird 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Lumibird you should know about.

If you're unsure about the strength of Lumibird'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.