Even With A 25% Surge, Cautious Investors Are Not Rewarding Gas Plus S.p.A.'s (BIT:GSP) Performance Completely

Gas Plus S.p.A. (BIT:GSP) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 178% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Gas Plus' P/E ratio of 16.7x, since the median price-to-earnings (or "P/E") ratio in Italy is also close to 17x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Gas Plus certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Gas Plus

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

Does Growth Match The P/E?

Gas Plus' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 19%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 28% per annum as estimated by the lone analyst watching the company. With the market only predicted to deliver 15% per year, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Gas Plus is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Gas Plus' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Gas Plus currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

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

If these risks are making you reconsider your opinion on Gas Plus, 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.