NeuroScientific Biopharmaceuticals Limited (ASX:NSB) shares have continued their recent momentum with a 117% gain in the last month alone. This latest share price bounce rounds out a remarkable 576% gain over the last twelve months.

After such a large jump in price, NeuroScientific Biopharmaceuticals may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 70.1x, since almost half of all companies in Australia have P/E ratios under 18x and even P/E's lower than 11x are not unusual. 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.

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NeuroScientific Biopharmaceuticals certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for NeuroScientific Biopharmaceuticals

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on NeuroScientific Biopharmaceuticals will help you shine a light on its historical performance.

Is There Enough Growth For NeuroScientific Biopharmaceuticals?

The only time you'd be truly comfortable seeing a P/E as steep as NeuroScientific Biopharmaceuticals' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's alarming that NeuroScientific Biopharmaceuticals' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From NeuroScientific Biopharmaceuticals' P/E?

NeuroScientific Biopharmaceuticals' P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that NeuroScientific Biopharmaceuticals currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 4 warning signs for NeuroScientific Biopharmaceuticals (2 can't be ignored!) that you need to take into consideration.

Of course, you might also be able to find a better stock than NeuroScientific Biopharmaceuticals. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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