A Piece Of The Puzzle Missing From ITD Cementation India Limited's (NSE:ITDCEM) 27% Share Price Climb

Despite an already strong run, ITD Cementation India Limited (NSE:ITDCEM) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 190% in the last year.

Even after such a large jump in price, it's still not a stretch to say that ITD Cementation India's price-to-earnings (or "P/E") ratio of 31x right now seems quite "middle-of-the-road" compared to the market in India, where the median P/E ratio is around 32x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

ITD Cementation India certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for ITD Cementation India

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

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

The only time you'd be comfortable seeing a P/E like ITD Cementation India's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 120%. The latest three year period has also seen an excellent 1,637% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 24% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 21% per annum, which is noticeably less attractive.

In light of this, it's curious that ITD Cementation India's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

ITD Cementation India's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of ITD Cementation India's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Plus, you should also learn about this 1 warning sign we've spotted with ITD Cementation India.

If you're unsure about the strength of ITD Cementation India's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com