After Leaping 25% HPL Electric & Power Limited (NSE:HPL) Shares Are Not Flying Under The Radar

HPL Electric & Power Limited (NSE:HPL) shareholders have had their patience rewarded with a 25% share price jump in the last month. This latest share price bounce rounds out a remarkable 360% gain over the last twelve months.

Following the firm bounce in price, HPL Electric & Power may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 66.4x, 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 so lofty.

HPL Electric & Power certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for HPL Electric & Power

If you'd like to see what analysts are forecasting going forward, you should check out our free report on HPL Electric & Power.

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

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

Retrospectively, the last year delivered an exceptional 27% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 65% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 24%, which is noticeably less attractive.

With this information, we can see why HPL Electric & Power is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

HPL Electric & Power's 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 HPL Electric & Power's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for HPL Electric & Power (1 shouldn't be ignored!) that you need to be mindful of.

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.