Ryazanenergosbyt (MCX:RZSB) shares have continued recent momentum with a 36% gain in the last month alone. That's tops off a massive gain of 102% in the last year.

All else being equal, a sharp share price increase should make a stock less attractive to potential investors. 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). So some would prefer to hold off buying when there is a lot of optimism towards a stock. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.

View our latest analysis for Ryazanenergosbyt

How Does Ryazanenergosbyt's P/E Ratio Compare To Its Peers?

Ryazanenergosbyt's P/E of 11.45 indicates some degree of optimism towards the stock. As you can see below, Ryazanenergosbyt has a higher P/E than the average company (7.7) in the electric utilities industry.

Its relatively high P/E ratio indicates that Ryazanenergosbyt 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

P/E ratios primarily reflect market expectations around earnings growth rates. If earnings are growing quickly, then the 'E' in the equation will increase faster than it would otherwise. That means even if the current P/E is high, it will reduce over time if the share price stays flat. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

Ryazanenergosbyt's earnings made like a rocket, taking off 99% last year. The cherry on top is that the five year growth rate was an impressive 44% per year. So I'd be surprised if the P/E ratio was not above average.

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

One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. That means it doesn't take debt or cash into account. 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).

So What Does Ryazanenergosbyt's Balance Sheet Tell Us?

With net cash of ₽201m, Ryazanenergosbyt has a very strong balance sheet, which may be important for its business. Having said that, at 16% of its market capitalization the cash hoard would contribute towards a higher P/E ratio.

The Verdict On Ryazanenergosbyt's P/E Ratio

Ryazanenergosbyt's P/E is 11.5 which is above average (8.9) in its market. The excess cash it carries is the gravy on top its fast EPS growth. So based on this analysis we'd expect Ryazanenergosbyt to have a high P/E ratio. What is very clear is that the market has become more optimistic about Ryazanenergosbyt over the last month, with the P/E ratio rising from 8.4 back then to 11.5 today. 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.

Investors should be looking to buy stocks that the market is wrong about. 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. Although we don't have analyst forecasts 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 Ryazanenergosbyt. 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.