Materialise NV's (NASDAQ:MTLS) P/E Is Still On The Mark Following 26% Share Price Bounce

Materialise NV (NASDAQ:MTLS) shareholders have had their patience rewarded with a 26% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

After such a large jump in price, Materialise's price-to-earnings (or "P/E") ratio of 51.1x might make it look like a strong 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 11x 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 so lofty.

With earnings growth that's superior to most other companies of late, Materialise has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Materialise

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

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 274% last year. Pleasingly, EPS has also lifted 49% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 26% per year as estimated by the dual analysts watching the company. With the market only predicted to deliver 11% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Materialise's 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 Key Takeaway

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

We've established that Materialise maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Materialise that you should be aware of.

If these risks are making you reconsider your opinion on Materialise, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.