Remsons Industries Limited (NSE:REMSONSIND) Stocks Shoot Up 25% But Its P/E Still Looks Reasonable

Despite an already strong run, Remsons Industries Limited (NSE:REMSONSIND) shares have been powering on, with a gain of 25% in the last thirty days. This latest share price bounce rounds out a remarkable 360% gain over the last twelve months.

Following the firm bounce in price, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 31x, you may consider Remsons Industries as a stock to avoid entirely with its 65.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Remsons Industries recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable 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.

View our latest analysis for Remsons Industries

Although there are no analyst estimates available for Remsons Industries, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 23% last year. The latest three year period has also seen an excellent 248% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 24% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Remsons Industries' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From Remsons Industries' P/E?

Remsons Industries' P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Remsons Industries 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.

You always need to take note of risks, for example - Remsons Industries has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Remsons Industries, 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. 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.