Why Investors Shouldn't Be Surprised By Lotus Eye Hospital and Institute Limited's (NSE:LOTUSEYE) P/E

Lotus Eye Hospital and Institute Limited's (NSE:LOTUSEYE) price-to-earnings (or "P/E") ratio of 73.8x might make it look like a strong sell right now compared to the market in India, where around half of the companies have P/E ratios below 15x and even P/E's below 8x are quite common. 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.

Recent times have been quite advantageous for Lotus Eye Hospital and Institute as its earnings have been rising very briskly. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Lotus Eye Hospital and Institute

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 Lotus Eye Hospital and Institute's earnings, revenue and cash flow.

How Is Lotus Eye Hospital and Institute's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Lotus Eye Hospital and Institute's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 53% last year. The strong recent performance means it was also able to grow EPS by 143% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 10% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Lotus Eye Hospital and Institute is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

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.

As we suspected, our examination of Lotus Eye Hospital and Institute revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for Lotus Eye Hospital and Institute that you need to take into consideration.

Of course, you might also be able to find a better stock than Lotus Eye Hospital and Institute. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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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