LeMaitre Vascular, Inc. (NASDAQ:LMAT) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The annual gain comes to 102% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 19x, you may consider LeMaitre Vascular as a stock to avoid entirely with its 58.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for LeMaitre Vascular as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LeMaitre Vascular.

Does Growth Match The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like LeMaitre Vascular's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 50% gain to the company's bottom line. The latest three year period has also seen an excellent 38% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 11% per annum over the next three years. With the market predicted to deliver 11% growth each year, the company is positioned for a comparable earnings result.

With this information, we find it interesting that LeMaitre Vascular is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Final Word

LeMaitre Vascular's P/E is flying high just like its stock has during the last month. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that LeMaitre Vascular currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for LeMaitre Vascular with six simple checks will allow you to discover any risks that could be an issue.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.