Optimistic Investors Push Rosetti Marino SpA (BIT:YRM) Shares Up 25% But Growth Is Lacking

Rosetti Marino SpA (BIT:YRM) shares have continued their recent momentum with a 25% gain in the last month alone. This latest share price bounce rounds out a remarkable 725% gain over the last twelve months.

Since its price has surged higher, Rosetti Marino may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 42.5x, since almost half of all companies in Italy have P/E ratios under 16x and even P/E's lower than 11x are not unusual. 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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With earnings growth that's superior to most other companies of late, Rosetti Marino has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Rosetti Marino

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

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

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

Retrospectively, the last year delivered an exceptional 294% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 1.5% each year as estimated by the one analyst watching the company. Meanwhile, the broader market is forecast to expand by 15% per annum, which paints a poor picture.

With this information, we find it concerning that Rosetti Marino is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Final Word

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

Our examination of Rosetti Marino's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Rosetti Marino that you need to take into consideration.

Of course, you might also be able to find a better stock than Rosetti Marino. 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.