BEML Limited (NSE:BEML) Looks Just Right With A 26% Price Jump

BEML Limited (NSE:BEML) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 226% in the last year.

Since its price has surged higher, given close to half the companies in India have price-to-earnings ratios (or "P/E's") below 33x, you may consider BEML as a stock to avoid entirely with its 75.6x P/E ratio. 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.

With earnings growth that's superior to most other companies of late, BEML has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for BEML

Want the full picture on analyst estimates for the company? Then our free report on BEML will help you uncover what's on the horizon.

How Is BEML's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 63% gain to the company's bottom line. The latest three year period has also seen an excellent 309% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 41% per year during the coming three years according to the dual analysts following the company. With the market only predicted to deliver 22% each year, the company is positioned for a stronger earnings result.

With this information, we can see why BEML is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From BEML's P/E?

BEML's P/E is flying high just like its stock has during the last month. 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 BEML's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware BEML is showing 2 warning signs in our investment analysis, and 1 of those is significant.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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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