Those holding Chelyabinsk Forge-and-Press Plant (MCX:CHKZ) shares must be pleased that the share price has rebounded 45% in the last thirty days. But unfortunately, the stock is still down by 10% over a quarter. Unfortunately, the full year gain of 9.8% wasn't so sweet.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that deep value investors might steer clear when expectations of a company are too high. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

View our latest analysis for Chelyabinsk Forge-and-Press Plant

Does Chelyabinsk Forge-and-Press Plant Have A Relatively High Or Low P/E For Its Industry?

Chelyabinsk Forge-and-Press Plant's P/E of 15.40 indicates some degree of optimism towards the stock. You can see in the image below that the average P/E (8.9) for companies in the auto components industry is lower than Chelyabinsk Forge-and-Press Plant's P/E.

That means that the market expects Chelyabinsk Forge-and-Press Plant will outperform other companies in its industry. Clearly the market expects growth, but it isn't guaranteed. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

Probably the most important factor in determining what P/E a company trades on is the earnings growth. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. And in that case, the P/E ratio itself will drop rather quickly. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.

Chelyabinsk Forge-and-Press Plant increased earnings per share by 6.7% last year. And earnings per share have improved by 13% annually, over the last three years.

Remember: P/E Ratios Don't Consider The Balance Sheet

Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

Is Debt Impacting Chelyabinsk Forge-and-Press Plant's P/E?

Chelyabinsk Forge-and-Press Plant has net debt worth a very significant 114% of its market capitalization. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.

The Verdict On Chelyabinsk Forge-and-Press Plant's P/E Ratio

Chelyabinsk Forge-and-Press Plant's P/E is 15.4 which is above average (7.9) in its market. With relatively high debt, and reasonably modest earnings per share growth over twelve months, it's safe to say the market believes the company will improve its growth in the future. What we know for sure is that investors have become more excited about Chelyabinsk Forge-and-Press Plant recently, since they have pushed its P/E ratio from 10.6 to 15.4 over the last month. For those who prefer to invest with the flow of momentum, that might mean it's time to put the stock on a watchlist, or research it. But the contrarian may see it as a missed opportunity.

When the market is wrong about a stock, it gives savvy investors an opportunity. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. We don't have analyst forecasts, but shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

Of course you might be able to find a better stock than Chelyabinsk Forge-and-Press Plant. So you may wish to see this free collection of other companies that have grown earnings strongly.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.