Radici Pietro Industries & Brands S.p.A. (BIT:RAD) Stocks Shoot Up 25% But Its P/E Still Looks Reasonable

Radici Pietro Industries & Brands S.p.A. (BIT:RAD) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Since its price has surged higher, Radici Pietro Industries & Brands may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 24.4x, since almost half of all companies in Italy have P/E ratios under 14x and even P/E's lower than 8x are not unusual. 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.

Radici Pietro Industries & Brands 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 Radici Pietro Industries & Brands

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Radici Pietro Industries & Brands.

What Are Growth Metrics Telling Us About The High P/E?

Radici Pietro Industries & Brands' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 148% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 76% each year during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 17% each year, which is noticeably less attractive.

In light of this, it's understandable that Radici Pietro Industries & Brands' 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 Final Word

The strong share price surge has got Radici Pietro Industries & Brands' P/E rushing to great heights as well. 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.

As we suspected, our examination of Radici Pietro Industries & Brands' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Radici Pietro Industries & Brands (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Radici Pietro Industries & Brands. 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.