Chelyabinsk Forge-and-Press Plant (MCX:CHKZ) shares have had a really impressive month, gaining 43%, after some slippage. That's tops off a massive gain of 178% in the last year.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). 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). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.

See 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?

We can tell from its P/E ratio of 15.42 that there is some investor optimism about Chelyabinsk Forge-and-Press Plant. You can see in the image below that the average P/E (12.4) for companies in the auto components industry is lower than Chelyabinsk Forge-and-Press Plant's P/E.

Its relatively high P/E ratio indicates that Chelyabinsk Forge-and-Press Plant shareholders think it will perform better than other companies in its industry classification. Shareholders are clearly optimistic, but the future is always uncertain. So further research is always essential. I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Chelyabinsk Forge-and-Press Plant's earnings made like a rocket, taking off 87% last year. Having said that, the average EPS growth over the last three years wasn't so good, coming in at 12%.

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

Don't forget that the P/E ratio considers market capitalization. So it won't reflect the advantage of cash, or disadvantage of debt. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.

Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).

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

Net debt totals a substantial 112% of Chelyabinsk Forge-and-Press Plant's market cap. If you want to compare its P/E ratio to other companies, you must keep in mind that these debt levels would usually warrant a relatively low P/E.

The Bottom Line 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 (7.4) in its market. While its debt levels are rather high, at least its EPS is growing quickly. So it seems likely the market is overlooking the debt because of the fast earnings growth. What is very clear is that the market has become more optimistic about Chelyabinsk Forge-and-Press Plant over the last month, with the P/E ratio rising from 10.8 back then to 15.4 today. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.

Investors have an opportunity when market expectations about a stock are wrong. People often underestimate remarkable growth -- so investors can make money when fast growth is not fully appreciated. Although we don't have analyst forecasts you might want to assess this data-rich visualization of earnings, revenue and cash flow.

But note: Chelyabinsk Forge-and-Press Plant may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

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.

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. Thank you for reading.