Investors Appear Satisfied With Atour Lifestyle Holdings Limited's (NASDAQ:ATAT) Prospects As Shares Rocket 28%

The Atour Lifestyle Holdings Limited (NASDAQ:ATAT) share price has done very well over the last month, posting an excellent gain of 28%. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, Atour Lifestyle Holdings' price-to-earnings (or "P/E") ratio of 20.8x might make it look like a sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 18x and even P/E's below 10x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Atour Lifestyle Holdings certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Atour Lifestyle Holdings

Want the full picture on analyst estimates for the company? Then our free report on Atour Lifestyle Holdings will help you uncover what's on the horizon.

Is There Enough Growth For Atour Lifestyle Holdings?

The only time you'd be truly comfortable seeing a P/E as high as Atour Lifestyle Holdings' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 245% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 222% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 21% per year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.

In light of this, it's understandable that Atour Lifestyle Holdings' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Atour Lifestyle Holdings' P/E

Atour Lifestyle Holdings shares have received a push in the right direction, but its P/E is elevated too. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Atour Lifestyle Holdings' 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. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Atour Lifestyle Holdings that you need to be mindful 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).

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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.