After Leaping 31% ELES Semiconductor Equipment S.p.A. (BIT:ELES) Shares Are Not Flying Under The Radar

ELES Semiconductor Equipment S.p.A. (BIT:ELES) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 6.0% isn't as attractive.

Following the firm bounce in price, given close to half the companies in Italy have price-to-earnings ratios (or "P/E's") below 13x, you may consider ELES Semiconductor Equipment as a stock to avoid entirely with its 40.5x P/E ratio. 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.

ELES Semiconductor Equipment 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 ELES Semiconductor Equipment

Keen to find out how analysts think ELES Semiconductor Equipment's future stacks up against the industry? In that case, our free report is a great place to start.

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 ELES Semiconductor Equipment's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 226% last year. Still, incredibly EPS has fallen 44% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 56% per year during the coming three years according to the lone analyst following the company. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader market.

With this information, we can see why ELES Semiconductor Equipment is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On ELES Semiconductor Equipment's P/E

The strong share price surge has got ELES Semiconductor Equipment's P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of ELES Semiconductor Equipment's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for ELES Semiconductor Equipment (1 is a bit concerning) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.