Further Upside For Talbros Automotive Components Limited (NSE:TALBROAUTO) Shares Could Introduce Price Risks After 26% Bounce

Talbros Automotive Components Limited (NSE:TALBROAUTO) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 132% in the last year.

Although its price has surged higher, given about half the companies in India have price-to-earnings ratios (or "P/E's") above 34x, you may still consider Talbros Automotive Components as an attractive investment with its 21x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been quite advantageous for Talbros Automotive Components as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Talbros Automotive Components

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

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

There's an inherent assumption that a company should underperform the market for P/E ratios like Talbros Automotive Components' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 98% gain to the company's bottom line. Pleasingly, EPS has also lifted 181% in aggregate from three years ago, thanks to the last 12 months of growth. 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 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Talbros Automotive Components' P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Talbros Automotive Components' P/E?

Talbros Automotive Components' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Talbros Automotive Components currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Talbros Automotive Components that you need to be mindful of.

You might be able to find a better investment than Talbros Automotive Components. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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