Bharat Bijlee Limited (NSE:BBL) Looks Just Right With A 25% Price Jump

Bharat Bijlee Limited (NSE:BBL) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 158% in the last year.

Following the firm bounce in price, Bharat Bijlee may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 35x, since almost half of all companies in India have P/E ratios under 31x and even P/E's lower than 17x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been quite advantageous for Bharat Bijlee 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Bharat Bijlee

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 Bharat Bijlee's earnings, revenue and cash flow.

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

Bharat Bijlee's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 61%. Pleasingly, EPS has also lifted 304% 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.

Comparing that to the market, which is only predicted to deliver 24% 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 Bharat Bijlee's 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 Bharat Bijlee's P/E?

Bharat Bijlee's P/E is getting right up there since its shares have risen strongly. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Bharat Bijlee 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 - Bharat Bijlee has 1 warning sign we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.