What You Can Learn From Ratnamani Metals & Tubes Limited's (NSE:RATNAMANI) P/E

Ratnamani Metals & Tubes Limited's (NSE:RATNAMANI) price-to-earnings (or "P/E") ratio of 17.1x might make it look like a sell right now compared to the market in India, where around half of the companies have P/E ratios below 14x and even P/E's below 7x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Ratnamani Metals & Tubes recently, which is pleasing to see. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Ratnamani Metals & Tubes

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Ratnamani Metals & Tubes' earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Ratnamani Metals & Tubes' is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 113% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 3.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Ratnamani Metals & Tubes' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Ratnamani Metals & Tubes' P/E?

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 Ratnamani Metals & Tubes maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Ratnamani Metals & Tubes has 3 warning signs (and 1 which is significant) we think you should know about.

If these risks are making you reconsider your opinion on Ratnamani Metals & Tubes, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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. 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.
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