SC Arteca Jilava SA's (BVB:ARJI) Shares Climb 41% But Its Business Is Yet to Catch Up

Despite an already strong run, SC Arteca Jilava SA (BVB:ARJI) shares have been powering on, with a gain of 41% in the last thirty days. The last 30 days bring the annual gain to a very sharp 73%.

After such a large jump in price, given around half the companies in Romania have price-to-earnings ratios (or "P/E's") below 14x, you may consider SC Arteca Jilava as a stock to potentially avoid with its 19.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's exceedingly strong of late, SC Arteca Jilava has been doing very well. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for SC Arteca Jilava

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SC Arteca Jilava will help you shine a light on its historical performance.

How Is SC Arteca Jilava's Growth Trending?

In order to justify its P/E ratio, SC Arteca Jilava would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 49%. 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.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that SC Arteca Jilava's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

The large bounce in SC Arteca Jilava's shares has lifted the company's P/E to a fairly high level. 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.

We've established that SC Arteca Jilava currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 3 warning signs for SC Arteca Jilava (1 is potentially serious!) that you should be aware of.

Of course, you might also be able to find a better stock than SC Arteca Jilava. 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.