What Adris grupa d. d.'s (ZGSE:ADRS) 42% Share Price Gain Is Not Telling You

Despite an already strong run, Adris grupa d. d. (ZGSE:ADRS) shares have been powering on, with a gain of 42% 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, Adris grupa d. d's price-to-earnings (or "P/E") ratio of 31.8x might make it look like a strong sell right now compared to the market in Croatia, where around half of the companies have P/E ratios below 16x and even P/E's below 10x 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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Adris grupa d. d has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Adris grupa d. d

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Adris grupa d. d will help you shine a light on its historical performance.

Is There Enough Growth For Adris grupa d. d?

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

If we review the last year of earnings growth, the company posted a terrific increase of 26%. The latest three year period has also seen an excellent 63% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

It's interesting to note that the rest of the market is similarly expected to grow by 19% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Adris grupa d. d is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

The strong share price surge has got Adris grupa d. d's P/E rushing to great heights as well. 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.

Our examination of Adris grupa d. d revealed its three-year earnings trends aren't impacting its high P/E as much as we would have predicted, given they look similar to current market expectations. Right now we are uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Adris grupa d. d that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.