Atrem S.A.'s (WSE:ATR) P/E Is Still On The Mark Following 29% Share Price Bounce

The Atrem S.A. (WSE:ATR) share price has done very well over the last month, posting an excellent gain of 29%. The last 30 days were the cherry on top of the stock's 322% gain in the last year, which is nothing short of spectacular.

Following the firm bounce in price, Atrem's price-to-earnings (or "P/E") ratio of 20.3x might make it look like a strong sell right now compared to the market in Poland, where around half of the companies have P/E ratios below 12x and even P/E's below 7x 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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Atrem certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Atrem

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Atrem's earnings, revenue and cash flow.

How Is Atrem's Growth Trending?

In order to justify its P/E ratio, Atrem would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 105% gain to the company's bottom line. The latest three year period has also seen an excellent 168% 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.

This is in contrast to the rest of the market, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Atrem is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Atrem's P/E

Atrem's P/E is flying high just like its stock has during the last month. 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 Atrem revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Atrem is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Atrem's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.