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.